1 January to 30 June 2014 - CUT | CUT,Chinhoyi … · Web viewDuring the previous year, the company built a dam in Kwekwe area where the company was drawing some water for industrial

CHAPTER 1: INDIVIDUAL TAXATION

QUESTION 1

Mr. Munemo, 60 years old, an Accountant with Zano Ltd in Harare was retrenched on 31 December 2014. He received the following income and paid the following expenses during the year.

Income $

Salary (annual)200 000

Bonus50 000

Cash in lieu of leave 15000

Severance pay (scheme approved by Minister) 40 000

Entertainment Allowance (Note 2) 2 000

Holiday Allowance 8 000

Expenditure

Contribution to a Pension Fund 5 000

Contribution to NSSA 600

Prescription drugs for his children 500

Medical Aid contributions 250

Subscriptions to CIS (a fellow member) 100

Subscriptions to DSTV 200

Additional Information/Notes

1. Mr. Munemo was also using a company vehicle, Toyota Hilux Double Cab with an engine capacity of 2 500cc.

2. The entertainment allowance was given for the purpose of hosting an important client. Mr. Munemo only used $1 000 of this amount for this purpose.

3. He was also using a company house in Borrowdale, Harare. The monthly open market rental for the house was $500.Furniture costing $800 was acquired during the year for use in the house.

4. PAYE withheld during the year amounted to $2 000.

5. He received dividends amounting to $12 000(Gross) from Mkosi Pty a company incorporated in South Africa. Non-Resident Tax (NRT) amounting to $1 800 was deducted at source.

6. Gross rentals amounting to $10 000 were received by him from his commercial buildings in Nairobi, Kenya.

7. He co-authored a book in Zimbabwe which was then published in London, United Kingdom. Gross Royalties from received from United Kingdom from the book sales amounted to $20 000 during the year.

8. Interest received from his investments in Belgium amounted to $10 000(Gross). 10% of this amounted was deducted at source as Non-Resident Interest on Tax (NRIT). He incurred expenses amounting to $500 in legal expenses connected with the remittance of the interest to Zimbabwe.

9. He purchased a Retirement Annuity Policy with First Mutual many years ago for $1 250. They agreed on life expectancy of 6 years after retirement. During the year he became entitled to $2100 per annum as an annuity.

10. Dividends received from Econet Wireless Ltd Zimbabwe amounting to $4 500.

Required:

a) Calculate Mr. Munemos tax liability from employment for the assessment year ended 31 December 2014. [10 marks]

b) Calculate Mr. Munemos tax payable on income from investments for the same assessment ending 31 December 2014. [15 marks]

[Total: 25 marks]

QUESTION 2

Mark Mhizha is a neurologist of repute and the Head of Research in the Ministry of Health and Child Welfare. In early 2012 while on an employment related assignment, he was involved in an accident that led to paraplegia and him being wheelchair bound.

After his return to work in late 2012, Mark Mhizha registered a not for profit Private Voluntary Organisation (PVO) to champion for the rights of the paraplegics within the country. The PVO employed Mark in a part-time role and also four other people. He also renovated and extended his private practice premises in order to make it more accessible in light of his condition and also to accommodate his PVO related work.

Mark Mhizhas earnings and entitlements from employment for the year ended 31 December 2013

US$

Salary 25 000

Accommodation allowance 3 000

Representation allowance (including transport allowance) 5 000

Clothing allowance 1 500

Bonus 2 500

Cash in lieu of leave 2 000

Holiday allowance 4 000

Entertainment allowance 3 800

On call allowance 4 500

Statutory and other deductions (paid by employee)

Subscriptions to the Medical Practitioners Association 1 200

Employer pension fund contributions 1 875

Retirement annuity fund contributions 2 700

NSSA contributions 750

Other employment related information

(1) Mark Mhizha makes use of a fully expensed allocated automatic vehicle, engine capacity, 3300cc.

(2) During the year ended 31 December 2013, Mark Mhizha incurred the following medical expenses:

US$

Prescription medicines 2 800

Ambulance charges 700

Wheelchair upgrade expenses 1 000

4 500

60% of the medical expenses were recovered from the Medical Aid Society of which Mark Mhizha is a member. His medical aid contributions for the year amounted to US$6 000 and the employer took care of the amount in full in line with the provisions of his employment contract.

(3) In August 2013 Mark Mhizha was personally awarded a lump sum amount of US$35 000 by the World Health Organisation (WHO) in recognition of his outstanding contribution to the modern research in neuroscience while the Ministry of Health and Child Welfare was awarded a certificate of milestone achievement in neurology. The Ministry of Health and Child Welfare also paid him US$5 000 for his achievement and appointed him the chairperson of the Neuroscience Steering Committee.

(4) During the year ended 31 December 2013, he received a total of US$8 000 from the PVO as his part-time salary and entitlement.

Private Practice Income and expenses for the year ended 31 December 2013

US$

Income Notes

Fees 55 000

Dispensary sales 32 000

Royalties 15 000

102 000

Expenses

Dispensary procurements 19 500

Printing and stationery 4 000

Staff costs 12 000

Motor vehicle expenses (i) 7 500

Repairs and maintenance (ii) 23 000

Provision for bad debts (iii) 11 000

77 000

Net profit 25 000

Notes

(i) Mark Mhizha owns a vehicle that he purchased in 2012 for US$15 000. The vehicle is used by his private practice manager. The manager uses 70% of the vehicle for business purposes and the remainder for private use.

(ii) Repairs and maintenance costs are made up of the following:

US$

General repairs and maintenance 3 000

Renovations of the main practice building 8 000

Extension to the main building for PVO use (considered to be private) 12 000

23 000

(iii) The provision for impaired debts consists of the following:

US$

5% of the debtors book 9 000

Ellen Cox who passed away during the course of the year 1 000

Peter Meki who relocated permanently to Australia 1 000

11 000

(iv) Mark Mhizha has always claimed the maximum capital allowances possible. An extract of his fixed assets register is as follows:

Asset category Date of purchase/construction Cost (US$)

Furniture and Fittings 2009 10 000

Practice Building 2007 17 000

Motor vehicle 2012 15 000

Computer equipment 2013 5 000

Required:

(a) Supporting your answer with reasons, state the tax treatment of the following:

(i) World Health Organisation award to Mark Mhizha and the related payment by the Ministry of Health and Child Welfare; (2 marks)

(ii) Provision for impaired debts as detailed under Note (iii) above. (2 marks)

(b) (i) Calculate Mark Mhizhas taxable income and tax payable for the year ended 31 December 2013 clearly distinguishing the taxation of his employment income from his attributable business income; (25 marks)

(ii) State by when Mark Mhizhas PAYE for the month of December 2013 should be remitted to ZIMRA. (1 mark)

Total[30 marks]

QUESTION 3

Miss Huriet Davies was employed as marketing supervisor by Concord Investments (Private limited) in Bulawayo. She is ordinarily resident in Zimbabwe. However, for the tax year ended 31 December 2012, she received the following income and incurred the following expenses before her resignation at the end of October 2012.

Income $

Salary19 800

Annual Bonus1 600

Income from Sale of Private Clothes6 000Entertainment Allowance800Annuity for services Rendered in Denmark600Damages Awarded [note 1]4 000Purchased Annuity 16 000Interest from the Bank12 000

Profit from Sale of Inheritance 14 000Medical Shortfalls Incurred(1 800) NSSA contributions by Employer (1 000)

Pension Contributions to Registered Pension Fund (5 800)

Compensation for Leave not taken 1 300Employees Tax Deducted (4 700)

Additional information provided by employer.

1. During the year, Miss Huriet Davies went into a dispute with her employer and was dismissed by the company end of September and appealed through the court and was finally awarded damages of $ 4000 as she worn the case against her employer.

2. Miss Huriet Davies purchased a retirement annuity Fund from First Mutual Life for

$16 000. She will be entitled to receive $250 per month for the next 8 years.

3. In February, Concorde Investments (Private) limited provided Miss Huriet Davies with a free use of Isuzu Double Cab with engine capacity 3000 cc for which the cost of importation of the motor vehicle was $20 000 to the employer.

4. She was staying in her house in Mpumula North suburb of Bulawayo where she acquired the house for $30 000 and the rentals for the similar property were $600 per month.

5. The employer gave $2 400 to Miss Huriet Davies as a token of appreciation for her outstanding achievement in marketing the company products which includes $400 canteen meals provided by the employer.

6. Miss Huriet Davies is a custodian of her late sisters son Philip who is disabled and has a wheelchair which costed the employer $6000 the previous year.

7. Her employer was providing her with groceries of $160 per month which were purchased from Bulawayo manufacturers during the year.

Required:-

a) State the due date for payment of PAYE to ZIMRA.(1 mark)

b) List three benefits from employment income that are exempted from tax for the year.(3 marks)

c) Calculate tax liability from employment income for Miss Huriet Davies for the year ended 31 December 2012.(16marks)

QUESTION 4

Mr Philip Nickson is the Chief Executive Officer of Nickson Investments (Private) Limited. He is ordinarily resident in Zimbabwe due to harsh economic conditions, the company decided to lay him off with a retirement package at the end of the year. For the tax year ended 31 December 2014 he received the following income and incurred the following expenses for the year:-

Income $

Salary 16 200

Production Bonus for the year 1 000

Retirement package (note 1) 36 000

Lectureship in information technology (note 2)1 920

Subscription received 4 000

House maid paid by employer 1 200

Lump sum payment from unapproved fund5 000

Wheelchair purchased for disabled son (2 400)


Pension contributions to First Mutual pension fund (3 600)

NSSA contributions for the year (1 400)

Funeral contributions (1 300)

PAYE deducted during the year 13 358

Interest from Barclays Bank 800

Dividends from South Africa net ($640 tax deducted from

Source) 1800

Interest from POSB South Africa net ($840 tax deducted

from source) 3 200

Royalties from South Africa net ($1 200 tax deducted

from source) 4 000

Additional information provided by the employer:-

1. When Nickson Investments (Private) limited awarded Mr. Philip Nickson retirement package, he was also given a Pick Up truck with a market value of $12 000 as gratuity for long service award with the company.

2. Mr Philip Nickson was a computer specialist and during the year, he was a part time Lecturer with a Private College and was entitled to a lectureship of $10 per hour for the four hours he was conducting per week over the year.

3. The company provided Mr. Philip Nickson free use of company house in May for which similar properties within the same area were built at a cost of $28 000 during the year.

4. In September, Mr. Philip Nickson was granted an interest free loan amounting to $9600 of which $3600 was used to ferry his cousin to South Africa for heart treatment and the remainder was used for his sons medical check-up in China during the year.

5. He was entitled free use of a mercedez benz with engine capacity 3600cc of the company in April which was purchased from Hong Kong of which $3600 duty was payable in February 2013.

6. Mr Philip Nickson signed an agreement with Mr. Johnson Patel in Gweru for the use of Mr Philip Nicksons manufacturing building in return of a fee of $1960 per month which he had acquired for $30 000 beginning of the year.

Required:-

a) Explain the following payroll taxes and their due dates:-

i) PAYE.(1 mark)

ii) Workers compensation Insurance.(2 marks)

iii) Social security NSSA contributions.(2 marks)

b) Calculate tax payable from Investment income for the year.(7 marks)

c) Calculate Mr. Philip Nicksons tax payable from employment income for the year ended 31 December 2013.(11marks)

QUESTION 5

Elton Shumba is the financial director of Wonderland (Pvt) Ltd. He is also a director of Neverland (Pvt) Ltd, which is the holding of Wonderland (Pvt) Ltd.

Elton is 60 years of age. He had contracted polio during his youth and is confined to a wheelchair.

For the period 1 January 2010 to 31December 2010 Elton received the following remuneration from the company, which was all paid in foreign currency.

Note

US$

Salary

60 000

Directors fees, voted for o 30 September 2010

2 000

Medical aid contributions paid by the company

3 600

Medical expenses paid by the company in July 2010

1 000

Entertainment allowance

1

2 400

69 000

Eltons pension fund contributions to the companys approved pension fund for the period 1 Jan 2010 to 31 December 2010

6 575

PAYE deducted for the period 1 January to 31 December 2010

17 200

Notes

1 During the 2010 tax year Elton entertained clients at cost of US $ 950

Additional Information

For the period January 2010 to September 2010 he had the use of a company vehicle with an engine capacity of 1500 cc. In October 2010 the company sold the vehicle to Elton for US $ 2 000. The market value of the vehicle was US $ 3 500 and the cost to the company was US $ 5 450

In September 2010 Elton exercised an option to acquire 200 shares in Wonderland (Pvt) Ltd at US $ 2 per share. At that date the market value of these shares was US $ 3 per share. The option had been offered in February 2007 when the market value of the shares was the equivalent of US $ 3,50 per share.

Elton owns two flats, one of which is his principal private residence and another, which was let throughout the year for US $ 9 600. The monthly levy of US $ 500 per month was paid by Elton. Elton enclosed the balcony of the rented flat in September 2010 at a cost of US $ 1 800.

Elton received a pension of US $ 200 per month from an approved pension fund from his previous employer.

On 30 September 2010 Neverland (Pvt) Ltd paid Elton directors fees amounting to US $ 500 less US $ 100 withholding tax.

In September 2010 Elton invested funds in bankers acceptances. Interest on these bankers acceptances amounted to US $ 4 000 for the year.

Required

You are required to calculate Eltons tax liability for the year end 31 December 2009. Provide detailed explanations to support your calculations whenever necessary. {37}

Presentation marks: Arrangement and layout, clarity of explanation, logical argument and language usage. {3}

QUESTION 6

On 31st August 2013, Mr Smith aged sixty years, retired from employment after thirty years of service with a manufacturing company. His remuneration in respect of the period 1st January 2013 to 31st August 2013 was:

NotesUS $

Salary24,000

Bonus2,000

Entertainment allowance11,600

Cash in lieu of leave6,000

Lump sum payment from pension fund236,000

Medical aid contributions paid by the company800

Contributions to medical aid society(500)

Contributions to approved pension fund (6,000)

Other income

Dividend from Zimbabwean company (net of WHT $1 50)1,350

Bank interest from Zimbabwe Barclays bank account 2,500

Bank interest from Botswana Barclays bank account (net of WHT $600)3,400

Rental income Zimbabwean property4 8,000

Rental income Botswana property5 7,000

Royalties received61,500

NOTES

1. During the year ended 31 December 2013, Mr Smith spent $900 entertaining the company's clients.

2. In August 2013, Mr Smith received a lump sum of $ 36,000 being a part commutation of a retirement annuity fund which had matured in June 2013.The gross pension entitlement prior to the commutation amounted to $90, 000. His monthly pension from 1st July 2013 is $200.

3. During the period January 2013 to August 2013, Mr Smith had use of a company vehicle, a Nissan Wolf double cab with an engine capacity of 3,000 cc. On 31st August 2013, the company sold the vehicle to him for $3,000. The market value of the vehicle was $15,000 at the date of sale and its cost to the company was $25,000.

4. The Zimbabwean property is let at a rental income of $500 per month. Mr Smiths tenant had made an advance payment of $2,000 in respect of the rental for the period January 2014 to April 2014.

5. Mr Smith received rental income from a property in Botswana which he had inherited from the estate of a daughter who had died in Botswana.

6. Mr Smith received royalties from Australia in respect of a book written in Zimbabwe but published in Australia.

REQUIRED

Calculate the following for Mr Smith in respect of the year ended 31 December 2013, clearly distinguishing employment activities and trade and investment activities;

(a)Gross Income

(b) Income

(c) Taxable Income

(d) Tax payable.[30marks]

QUESTION 7

Charity Nhema, a widow aged 58 is employed as a youth coordinator in the Ministry of Youth and Development. In October 2013 she was involved in an accident while travelling to South Africa for a business meeting. The accident has caused her to be wheelchair bound.

She approached you for assistance in computing her taxable income for the year ended 31 December 2013. Employment earnings and deductions for the year are as follows;

$

Compensation from NSSA for permanent injuries21 500

Salary (PAYE $4 234)15 300

Representation allowance2 500

Housing Allowance9 800

Encashment of leave days1 456

Bonus700

Pension Contributions1678

Retirement Annuity Fund contributions5 000

Medical Aid Contributions7 000

Travel Allowance1 605

Widows Pension received4 200

Prescription medicines purchased860

Charity is granted free use of a Government vehicle, a land cruiser, engine capacity

3 200cc

Other Income received:

Rental income and deductions in respect of a house being managed by Gabriel Real Estates:

$

Gross rent received48 000

Estate agents management fees4 800

Repairs and maintenance1 300

Rates and Security1 895

Construction of a lock up garage and driveway (see note)5 700

Mortgage bond repayment6 500

Interest paid on mortgage bond2 200

Insurance premium for the property1 700

Note

Charity obtained a loan at an interest rate of 3% in order to effect the improvements to her property. The loan of $16 000 was advanced on 1 January 2013.

Other Investment Income:$

Interest received from Bankers Acceptances with Metropolitan bank15 000

Interest received from CABS Building Society16 000

Dividends received from Zimbabwe Sugar Refineries (gross)35 000

Interest received from a local commercial bank8 250

Required

a) Compute Charitys minimum taxable income for the year ended 31 December 2013 [25]

b) State and quantify the tax credits that Charity can claim against the tax payable by her on the income in (a) above [5]

(c)Compute Charitys resultant tax liability for the year of assessment ended 31 December 2013[10]

QUESTION 8

Mrs. Mandi (aged 52), a qualified engineer, was employed as a Works Superintendent at J M Works (Pvt) Ltd until 31 December 2013 when her position was abolished in accordance with an approved scheme of retrenchment. Her earnings and expenses (which include those from other sources other than employment) for the period 1 January 2013 to 31 December 2013 were as follows:

Earnings $

Salary 60 000

Bonus (this is the only bonus amount payable in 2010) 6 000

Dividends from shares held in Pamodzi (Pvt) Ltd (note 1) 6 000

Pension income 9 000

Retrenchment package 30 000

Interest Post Office Savings Bank (POSB) 1 000

Annuity receipt (note 2) 6 000

Income from rental of a residential property 12 000

Earnings from a poultry project 28 000

Payment to prevent her from joining (and disclosing trade secrets) to a rival

company for the next 3 years 15 000


Expenses

Subscriptions to Zimbabwe Institution of Engineers 3 500

Contributions to an approved pension fund 3 600

Contributions to a retired annuity fund 4 000

Household living expenses 18 000

Renewal of an engineers set of tools (1 June 2010) 6 000

Independence day donations 4 000

Poultry feeds and vaccines and other allowable costs 10 000

Donation to Mathew Rusike Childrens Home 3 000

The following additional information is given:

1) Pamodzi (Pvt) Ltd is a Malawian incorporated company.

2) The annuity receipt commences on 1 December 2013 and derives from an annuity that she purchased in 2005 for $60 000. The annuity is payable until 30 November 2018.

3) On 1 December 2013, she buys a motor vehicle from her employer for $5 000. At the time of sale, the vehicle has a market value of $4 500. The employer acquired the vehicle in February 2004 for $20 000. To assist Mrs. Mandi to purchase the vehicle, the employer had advances her a loan of $4 000 on 1 December 2013, payable on her date of termination, 31 December 2011. The loan is interest-free. You have information that the loan was forgiven (written off) on 31 December 2013 on the basis that she had served her employer well during her time of employment.

4) For the full month of December 2013 only she has the free use (also included in the terms of her contract of employment) of two company vehicles with engine capacities of 1800cc and 4000cc. The two cost the company (equally) $24 000 to maintain in December.

Calculate her minimum tax payable for the tax year ending on 31 December 2013. (25 Marks)

QUESTION 9

Mr Sarafina, an ordinary resident of Zimbabwe is 58 years old. He had been employed by the Ministry of Agriculture as an Agricultural Extension Officer for more than 15 years. On 30 June 2014 he opted for voluntary retrenchment under a scheme approved by the Ministry of Labour and Social Welfare. His income and expenses for the period 1 January 2014 to 30 June 2014 were as follows;

1 January to 30 June 2014

Earnings and expenses as an Agritex Officer $

Gross Salary200 000

Representation allowances 24 000

Entertainment allowances 6 000

Contributions to Government Pension Fund (6 000)

Approved Medical Aid Contributions (500)

PAYE Deducted(1 000)

During this period, Sarafina had the free use of a Government issued vehicle, a Toyota Hilux double cab which had an engine capacity of 2700cc.

When Sarafina resigned from Government employment on 30 June 2014, he was paid $50 000 from the Government pension fund. He also received $26 000 cash in lieu of leave. In addition, he received a retrenchment package worth $70 000.

1 July 2014 to 31 December 2014

When Sarafina knew of the Government retrenchment plans, he had already started looking for a new work engagement before the effective retrenchment date. Consequently, he was appointed by an International Agricultural Donor Support Organisation (Agricultural Support Network) as the head Field Operations Manager. He assumed his duties on 1 July 2014.

His earnings from Agricultural Support Network from 1 July to the end of the year were as follows:

Gross Salary$240 000

PAYE deducted ($26 000)

He also received free groceries amounting to $5 000 during the period. In addition, $1 000 worth of medical aid contributions were paid on his behalf by his employer. Sarafina also had free use of a vehicle provided by the organisation, a 2800cc Toyota Prado.

In December 2014, Agricultural Support Network, incurred $2 000 being travel costs for Mr Sarafina who had to attend a workshop on Pests and Agriculture in Africa in Egypt for 5 days. He stayed for 5 more days in Egypt on holiday.

Trade and investment income earned during the 2014 tax year$

Company dividends from Slovenia (Gross)14 000

Non-resident tax on dividends paid in Slovenia 1 800

Gross rentals received from his property in Harare CBD 15 000

Gross Royalties from Mambo press for a book published in Zimbabwe which he wrote while in Australia 25 000

Interest received from his investments in Madagascar2 000

Tax amounting to $200 was paid in relation to the interest received from Madagascar and expenses relating to the remittance of the interest into Zimbabwe amounting to $100 were also paid.

Required:

(a) Determine Mr Sarafinas tax liability from employment related income for the year ended 31 December 2014.

(b) Determine Mr Sarafinas tax liability from trade and investment income for the year ended 31 December 2014.

CHAPTER 2: TAXATION OF COMPANIES

QUESTION 1

The profit and loss account of Kee Lambado (Private) Limited, a retail and investment company, for the current year is as follows: -

$

Gross Profit 1 650 000

Profit on sale of commercial vehicle 5 000

Interest from Standard Chartered Bank 11 000

Interest from Oak Lambado (Private) Limited 21 000

Company dividends 3 5201 700 400

Less: Administration expenses

Depreciation180 000

General expenses 36 800

Rent 60 000

Bad debts 9 700

Donations 2 900

Advertising 14 600

Interest paid 6 000

Salaries and wages340 000

Provision of Directors fees200 000

Motor vehicle and travelling expense 450 000

Telephone, electricity and stationery240 000 1 540 000

Trading profit $160 400

You are provided with the following additional information:

1. Profit on sale of shares - the company, which deals in shares, bought and sold the shares in question within two months.

2. Interest received ($21 000) interest on a loan the company advanced Oak Lambado (Private) Limited

3. Included in general expenses of $36 800 are :

(a) $3500 finance charges on purchase of furniture

(b) $6 000 life assurance premiums on the life of the Managing Director. The policy is ceded to the company.

(c) $9 000 to Open Way Enterprises (Private) Limited under an agreement whereby only goods supplied by Kee Lambado (Private) Limited are to be sold by Openway Enterprises (Private) Limited.

(d) $500 fine imposed by ZIMRA; one of the companys employees used the wrong tariff code when filling out a bill of entry for the importation of trading stock.

(e) $980 being the balance of company formation costs written off.

(f) $220 pilferage of cash by an ex-employee

(g) $900 valuation fees for fire insurance.

4. Included in rent of $60 000 is: -

(a) $10 000 being a premium paid for the right of use of trading store for fifteen years

(b) $2 000 rent for an empty shop

5. Included in bad debts of $9 700 is

(a) $1 200 loan to a deceased employee

(c) $5 000 general provision for doubtful debts

6. Donations comprise: -

(a) $1 900 to an AIDS orphanage

(b) $1 000 to a charitable trust administered by the Ministry of Labour.

7. Interest paid comprises: -

(a) $4 000 on a loan secured to buy shares in a listed company.

(b) $2 000 on a loan secured to finance working capital.

8. The commercial vehicle was bought on 01 January 2011 for $120 000 and sold in the current year for $ 108 000. Special initial allowance was not claimed.

9. Directors fees were fixed at an AGM in January 2014

10. The asset schedule is as follows: -

ITV

31/12/12 ADDITIONS

Furniture & Fittings16 2006 500

Delivery Truck800 000

S I A was never claimed in the past.

Required

Commencing with the net profit per the profit and loss account, compute the taxable income of Kee Lambado (Private) Limited for the year ended 31 December 2013 giving explanations, where necessary for the items adjusted in your computation.

Your computation should be drawn to ensure minimum tax payable. [30]

QUESTION 2

Sonnage Investments (Private) limited is incorporated in Zimbabwe and the investor company is under Export processing zone (EPZ), manufactures blankets for export consumption. For the tax year ended 31 December 2012, the company recorded the following activities for the year.

$ $

Sales 4 250 000

Less cost of sales

Opening stock1 280 000

Add purchases1 100 000

2 380 000

Less closing stock 960 000 (1 420 000)

Gross profit 2 830 000

Other income

Profit on sale of Toyota Prado 10 000

Income from sale of dye and yarn50 000

2 890 000

Less expenses

Advertising and marketing 120 000

Administration expenses 1 860 000

Cost of canteen meals 30 000

Acquisition of industrial building 100 000

Depreciation 140 000

Donations to Zimbabwe Research Institute160 000

General expenses (note 4) 20 000

Lease expenses (note 5) 16 000

Experiment and research (note 6) 18 000

Ex gratia payment (6 dependants) 4 000

Provision for bad debts 10 000

General repairs 12 000(2 490 000)

Net profit for the year 400 000

Provision for taxation (103 000)

Retained profit for the year 297 000

Additional information provided.

1. During the previous year, the company built a dam in Kwekwe area where the company was drawing some water for industrial purposes and allowed the cost as a deduction and in the year of assessment, the government awarded the company a grant of $60 000 towards the dam constructed.

2. The directors of the company took blankets worth $10 000 from the factory and distributed amongst themselves as Christmas gifts.

3. The following is the income tax values (ITV) of assets at 1 January 2012.

AssetsOriginal Date ofITV 1/01/12Market

CostPurchase$Value

$$

Computer equipment 6 000January 2011 4 500

Manufacturing machinery 120 000May 2010 100 800

Furniture 8 200September 2009 6 421 3 299

Toyota Prado 30 000March 2012 40 000

Commercial vehicle 20 000June 2012 10 000 18 000

Toyota Surf 16 000September 2012

4. Included in general expenses are:- $

Audit and accounting fees2 000

Scholarship fees: Clothing & Textiles 8 000

Interest on loan to acquire industrial building4 000

Removal of factory stock2 878

Loss on sale of furniture3 122

20 000

5. The company entered into a five year lease agreement for which it paid a Lumpsum of $12 000 and rentals of $4 000 to Amalgamation Transport Services for the lease of a Mercedez Benz which was used by marketing manager to boost exports of blankets to other countries.

6. For the production of variety of blankets, the company embarked on experiment and research which costed $18 000 and excluded from this amount are the following expenses incurred.

$

Advertisement and promotion of blankets in Zambia 6 000

Providing samples of Blankets in Botswana 8 000

Electricity connection fee 6 000

Renewal of business license 2 000

22 000

Required:-

a) State the treatment of the grant awarded to company in the year of assessment.

(1 mark)

b) List five advantages that will be enjoyed by the company as an investor in Zimbabwe. (5 marks)

c) Calculate minimum taxable income for Sonnage Investments (Private) Limited for the year ended 31 December 2012. (22 marks)

QUESTION 3

After qualifying as a CA you were appointed as the tax manager at a small accounting firm. The following tax-related queries were presented to you by partners of the firm at your routine Friday meeting.

Query

MMM (Pvt) Ltd, a company incorporated in Zimbabwe on 1 September 2009, manufactures specialist glassware. The company has a 31 December year end and commenced operations on 15 January 2010.

The companys gross income for the 31 December 2010 year was as follows:

US$

US$

Gross income

87 500

Expenditure:

Accountancy fees

600

Depreciation

5 600

Rent

28 800

Salaries

40 000

Travelling expenses to South Africa to purchase a glass blowing machine

1 200

Entertaining prospective clients

36

Staff Christmas party

440

(76,676)

Net profit before tax

10 824

During the period 1 September 20097 to 31 December 2009 the company incurred the following expenditure:

US$

Company formation expenses

800

Cost of purchasing plant and equipment (brought into use on 15 January 2010)

34 000

Rent

7 200

Wages for December 2009

2 000

44 000

In April 2010, the company imported a glass blowing machine, which was brought into use in June 2010 at a cost of $ 22 000.

Required: Calculate the tax liability of MMM (Pvt) Ltd for the year ended 31 December 2010.

QUESTION 4

Pauline Nyamwenda is the sole proprietor of a fast food catering business located in Marondera. Below is the profit and loss account of her business for the year ended 31 December 2013.

Notes$$

Gross sales305 000

Less: Cost of Sales195 000

Donation and SAZ26000

Leave passage38 500

Van running expenses411 900

Salaries and Wages5 110 000

Cost of computer66 000

Entertainment715 000 252 400

Net Profit 52 600

Notes

1. Cost of sales includes the cost of meals consumed by Pauline and her family amounting to $1 500. The catering price of these meals is $1 790.

2. Pauline made a cash donation to the National Bursary Fund on 1 July 2013 amounting to $3 500 and the balance is SAZ payment on her business income.

3. The leave passage cost relates to a trip made by Pauline and her family to visit her relatives in New York.

4. The Van was bought for cash by Pauline in 2011 at a cost of $84 000. It was agreed by ZIMRA that 75% of the van running expenses is attributable to business purposes.

5. Included in salaries and wages is a sum of $24 000 being salary drawn by Pauline.

6. The computer was bought for her daughter (20 years old) who is studying full time at the UZ.

7. On 31 October 2013, Pauline organised a weekend trip to Nyanga for her staff and their families. The details of the expenses are as follows;

$

Food6 000

Accommodation4 000

Leave passage5 000

8. Other Information:

(i)Pauline Nyamwenda has 2 residential properties as follows;

(a)Semi-detached house

Gross rental from 1 July to 31 December 2013 is at $6 000 per month.

Rates from 1 January to 31 December 2013 were $3 000.

(b)Condominium:$

Gross rental per annum8 400

Agent fee450

Interest on loan4 000

Repairs and repainting4 200

(ii)She also received a royalty of $2 000 from a book translation .However, the translation was not approved by the relevant authority and the whole amount was donated to an approved charitable organisation.

(iii)She donated a dialysis machine costing $27 000 to a kidney centre (a charitable trust) approved by the Ministry of Health. The value of the gift was certified by the Ministry of Health at $27 000.

(iv) She received an alimony amounting to $500 per month from her ex-husband, who divorced her 4 years ago. The alimony is paid in accordance with a court order.

(v)She has 4 children aged 9 to 20 years. The second child who is 17 years old is disabled due to an accident which happened 8 months ago. The other 2 children are in primary school. Both she and her ex-husband are maintaining the children.

(vi)Pauline also made a claim on the following expenses:$

A wheelchair for the disabled child costing2 900

Her yearly medical check-up costing920

Life insurance premium1 200

Medical and education insurance premium for the children (50:50)3 200

Required

Compute the income tax payable by Pauline Nyamwenda for the year of assessment.[30]

QUESTION 5

Clay (Pvt) Ltd is a manufacturer of stone fireplaces. The company made an operating profit of $450 000 for the year ending 31 December 2013. The expenses that have been deducted in the calculation of this figure include the following:

$

Amortisation of lease premium and improvement5 597

Depreciation78 750

Leasehold property

On 1 March 2013 Clay (Pvt) Ltd entered into a 15-year lease agreement to acquire the use of an office building .The company paid $50 000 as a lease premium on 1 March 2013. The monthly lease rental commencing on 1 April 2013 was $7 500 per month.

Clay (Pvt) Ltd was required to make an improvement to the property and this was included in the lease agreement. The amount specified in the lease agreement for the improvement was $67 000. The improvements were completed on 1 June 2013 at a cost of $72 500 and were immediately brought into use.

Purchase of manufacturing building

Clay (Pvt) Ltd bought new factory premises on 1 April 2013 and these were immediately brought into use. The cost was made up as follows;

$

Land300 000

Factory building475 000

Total775 000

Plant and Machinery

On 1 January 2013 details of the existing machinery used in the manufacturing process were as follows:

New machinery purchased on 1 January 2010 at cost$240 000

Second-hand machinery purchased on 1 January 2011 at cost$310 000

Clay (Pvt) Ltd has a policy of claiming minimum capital allowances.

Required

a) What are the key requirements that must be met before a lessee can deduct lease improvement expenditure[4]

(b)Compute Clay(Pvt)Ltd s taxable income for the tax year ending 31 December 2013. [10]

(c)Briefly discuss the income tax effects of the lease agreement for the lessor. Support your answer with appropriate workings. The lessor has 31 December year end. [6]

QUESTION 6

Agrometrics Ltd is a Zimbabwean company. Its abridged profit and loss account for the year ended 31 December 2013 is as follows:

$$Notes

Gross Profit702 000

Operating Expenses:

Bad and Doubtful Debts12 9401

Legal and Professional fees30 5102

Entertainment and gifts24 5703

Royalties payable50 0004

Motor Expenses (MDs car)5 2005

Car Hire13 3006

Amortisation of lease premium5 0007

Depreciation73 240

Loss on disposal of motor car2 820

Profit on disposal of motor car(440)

Consultative fee77 0008

Other Expenses95 380389 520

312 480

Other Operating Income:

Royalties receivable100 0009

Operating profit412 480

Profit on the sale of freehold property105 00010

Profit on sale of shares12 00011

Investment income:

Zimbabwe dividends received43 110

Interest receivable14 84057 950

587 430

Interest payable(7 440)

Profit before taxation579 990

Notes

1. Bad debts and doubtful debts are as follows:

Trade debts written off7 250

Trade debts recovered(100)

Increase in specific provision for doubtful debts6 290

Decrease in general provision for doubtful debts(500)

12 940

2. Legal and professional expenses are as follows:

Arranging lease of new business premises2 500

Fine for breach of environmental legislation8 000

Legal fees for environmental prosecution2 700

Debt collection17 350

30 550

3. Entertainment and gifts comprise:

Entertaining local customers3 270

Entertaining overseas customers4 800

Staff entertainment11 500

Donation to National Scholarship Fund1 500

Company calendars for customers3 500

24 570

4. Patent royalties of $40 000 were paid during the year for trade purposes to a non-resident person .A further $10 000 was accrued at the end of the year.

5. The MDs car is used for both business and private journeys. The company pays for all the cars costs. Private journeys accounted for 60% of the cars mileage during the year.

6 .During the year, a car was hired wholly for use by the marketing manager.

7. On 1 January 2013, the company paid a $60 000 premium for a 12-year lease on new business premises. The premium is written off against income on a straight line basis.

8. During the year , the company commissioned SBU Wan networking, supplied by a UK based company and incurred the following expenses:

a) Training of staff5 000

b) Technical support56 000

c) Payment to its employees involved in the project7 500

d) Commissioning fee9 000

9. Royalties of $60 000 were received during the year for trade purposes. A further $40 000 was accrued at the end of the year.

10. In October 2013, the company sold a freehold property for $400 000. This property had been acquired for $295 000 in July 2006. Its ITV on the date of sale was $32 000.

11. The amount shown for Zimbabwean dividends is the actual amount received during the year with no adjustment for tax credits.

12. A bank deposit account was opened in July 2013(not for trade purposes). No interest was received during the year, but an interest of $14 840 was received at the end of the year.

13. Interest of $11 440 was paid during the year for trade purposes .Interest was accrued at the end of the year but $4 000 had accrued at the start of the year.

Required

a)Compute Agrometrics taxable income for the year ended 31 December 2013.[40]

b) What are the conditions that should met before pre-production expenditure can be deducted?[5]

QUESTION 7

Sunroof Plc, a manufacturing company, incurred the following expenses during the year ended 30 September 2013:

$

Cost of land345 000

Stamp duty on the purchase of the land5 000

Legal fees on the Sale and Purchase Agreement3 000

Cost of construction of the buildings:

A factory300 000

A storage building (Note 1)54 000

A canteen and restrooms36 000

Living quarters for factory workers (3 units)90 000

Living quarters for administrative staff (5 units)120 000

The construction of all the buildings was completed in February 2013 and the buildings were put into use for the business from March 2013. The company also incurred $73 000 on cutting and leveling the land to prepare a site for the installation of heavy machinery, costing $800 000, purchased in January 2013. The machinery was put into use for the business from March 2013.

Note 1

The storage building, which is used for the storage of the finished products, is adjacent to the factory.

Required:

a) Explain the income tax rules regarding claiming capital allowances on an industrial building[5]

b)Compute Sunroof Plcs capital allowances in terms of para 2, 4th Schedule , Income Tax Act for the year of assessment 2013, together with the income tax values.[15]

c)Explain your treatment of the cost of (i)cutting and leveling the land (ii)cost of storage (iii)cost of canteens and restrooms[3]

(d)State, giving reasons, the circumstances in which a warehouse is treated as an industrial building for the purposes of industrial building allowances [2]

QUESTION 8

Mr Tima commenced a manufacturing business on the 1st of January 2013 after spending six months building the factory premises (factory buildings). His profit and loss account for the current year ended 31 December shows a profit of $150 000 after charging the following:

1. Depreciation of assets $350 000

2. Bursaries to a cousin $10 000 and $ 8 000 to his step sisters husband to enable them to take a technical course related to Mr Timas trade.

3. An ex-gratia once-and-for-all allowance of $25 000 to a dependent of a former employee who died during the year.

4. Pension payments of $36 000 (i.e. 9 months at $4 000 per month) to an employee who had been injured at work and who retired on the grounds of ill health. These are obligatory payments arising from the employees contract of service.

5. Contributions of $2 000 to the Standard Association of Central Africa.

6. Travelling expenses of $10 000 being the cost of sending an employee to purchase a lathe machine in South Africa.

7. Donation of $500 to a sports club that had purchased goods manufactured by Mr Tima.

8. Repairs including $15 000 made up as follows:

i) Removal of a tree threatening the foundation of the factory building - $2000

ii) Underpinning of foundation so that a crack which had appeared in a wall could be repaired successfully for $13 000.

9. Fencing of property for $10 000.

10. Installation costs of lathe machine purchased during the year - $2 000.

You are given the following further information

A: Fixed assets

The factory buildings which are accepted as industrial buildings, cost $5 000 000 excluding interest on money borrowed for its construction.

During the year construction work commenced and was completed on the following separate buildings

a) Staff canteen cost: $600 000

b) Showroom - $200 000 used exclusively to display manufactured goods.

c) Storeroom for finished products - $300 000

B. Plant

The following plant was purchased

(i) Lathe $120 000

(ii) Electric drills 15 000

(iii) Angle grinders 32 000

Total 167 000

C. Industrial tractor - $ 600 000 used exclusively to transport finished products to store -room. This was reconditioned before purchase and at that time was as good as new according to the seller.

D. Mercedes Benz - $800 000. Mr Tima used this vehicle and it was agreed that 25% of its use was private. The agreed portion of petrol, oil, licenses, insurance and repairs has been eliminated in the accounts.

E. Mr Tima incurred the following expenditure during the previous year of assessment, which has not been debited in the accounts.

a) Interest on money borrowed to construct the factory - $160 000 all paid prior to completion.

b) Interest on money borrowed to purchase raw materials - $50 000.

c) Salaries of all staff - $200 000

d) Connection of telephone $600; Water and light $1 200

Required

You are asked to calculate the taxable income of Mr Tima for the year ended 31 December 2013 after granting all possible allowances, which he can claim. [30]

QUESTION 9

Zex (Pvt) Ltd is a new manufacturing company operating in Guruve. In its first year ended 31 December 2015, it produced the following financial information:

Income US$ US$

Sales Local 400 000

-Export 600 000

Profit on disposal (note 1) 40 000

Income received from David Whitehead Textiles Ltd (note2)5 000

Dividend received from Econet Wireless Zimbabwe 30 000

1 075 000

Expenditure

Depreciation 100 000

Bad debts (note 3) 15 000

Salaries 150 000

Water and electricity (note 4) 16 000

Insurance 10 000

Training costs 13 000

General Expenses (note 5) 55 000

Pilferage (note 6) 1 000 (360 000)

Net Profit 715 000

Notes:

1. The profit from disposal was from a vehicle which was sold for $90 000. Its cost was $50 000 at the beginning of the year. No capital allowances had been granted.

2. Income from David Whitehead Textiles Ltd was money received restraining Zex Ltd from selling the same particular product as David Whitehead Textiles Ltd for 2 years.

3. Part of the bad debt of $5 000 is 10% provision for bad debts.

4. $3 000 was outstanding on the electricity bill for December therefore it was not included in the financial information.

5. Part of the general expenses of $20 000 was a Donation to Dynamos Football Club.

6. Pilferage was cash stolen by an employee and later on the company recovered $800.


The company also purchased the following assets during the year:

US$

Toyota Prado for the General Manager 20 000

T35 truck 75 000

Nissan Sunny 9 000

Training equipment 17 500

Warehouse for finished products (constructed) 135 000

Land 60 000

Furniture 58 000

380 500

The company is claiming maximum capital allowances.

Required:

Calculate Zex (Pvt) Ltd.s minimum tax liability for the assessment year ended 31 December 2015.

CHAPTER 3: TAXATION OF FARMERS

QUESTION 1

$$

Sales (Note 5)200 000

Less cost of sales (Note 6)(70 000)

Gross Profit130 000

Dividends received from Telecel Zimbabwe 5 000

Bad debts recovered 7 500

142 500

Operating expenses

Depreciation1 000

Administration Expenses1 500

Salaries and wages2 500

Herdsmens wages 900

Livestock feed3 000

Insurance (Note 1)1 500

General Expenses (Note 2)3 500 (13 900)

Net profit 128 600

Additional information/Notes:

1. Insurance is on:

Stock and fixed assets $900

Life insurance for farm owner $600

2. General expenses including the following:

Donation to National Scholarship Fund $1 000

Donation to independence celebrations $500

Exhibition fees at the Harare Agricultural Show $1 000

3. During the year the following expenses were incurred:

$

Farm tractor 50 000

Furniture and equipment 25 000

Honda CRV 15 000

Dam construction 30 000

Fencing 7 500

4. His livestock is valued as follows as at 1 January 2014:

Total Cost ($)

1 stud bull 200

20 Oxen 3 000

50 cows 7 500

16 heifers 1 600

15 tollies 1 500

40 calves 2 000

All his livestock is valued at Fixed Standard Value (FSV) with the exception of the stud bull which is valued at Purchase Price Value (PPV).

5. Part of the sales of US$62 250 were forced sales due to drought. The following were sold: 10 oxen, 10 cows, 5 heifers, and 13 calves. Other sales were normal sales of 10 oxen, 30 cows, 6 heifers and 6 tollies.

6. Parts of the cost of sales were purchases of livestock for restocking after conditions improved. The purchased stock was made up of 35 cows and 25 heifers for a subsidized cost of $5 000.

7. The assessed carrying capacity of land was certified by AREX as 100 livestock.

Required:

Compute Mr. Dambudzo Tambaoga minimum tax payable or assessed loss, granting all possible deductions he is entitled to, for the year ended 31 December 2014 [25 marks]

QUESTION 2

Mr Honda acquired Boran Farm in Bubi, on 2 February 2013 and immediately purchased the following livestock:

$

4 bulls12 000

50 cows38 000

20 Heifers14 500

30 Tollies22 500

10 Steers11 000

Mr Hondas livestock movements at the farm for the year ended 31 December 2013 were as follows:

13 calves were born

8 calves became tollies

2 bulls were stolen by cattle rustlers

8 tollies became steers

15 heifers became cows

4 steers were slaughtered for rations

26 cows were sold for $32 000 during the course of the year

On 2 November Mr. Honda was forced to sell 32 cows for $41 600 following an outbreak of foot and mouth disease at the neighboring farms. He incurred the following expenses during the year ended 31 December 2013:

$

General livestock expenses7 500

Sinking boreholes and wells12 000

Dip tanks15 300

Construction of staff housing (3 units)60 000

Tractor38 500


Mr.Hondas policy on valuation of livestock as approved by ZIMRA is as follows:

Bulls are valued at cost while other livestock are based on the following fixed standard values:

$

Cows1 000

Tollies800

Heifers800

Steers750

Calves200

On 29 December 2013, when the government lifted the quarantine, Mr Honda purchased 16 cows for $14 200 for restocking purposes. The ACCL of the farm is 70 livestock.

Required

a)Prepare a livestock reconciliation and valuation statement[10]

b) Compute tax reliefs that are applicable to Mr Honda and any other concessions applicable to him under the following Schedules of the Income Tax Act [Chapter 23:06];

(i)7th Schedule [7]

(ii)4th Schedule [3]

(c) Calculate Mr Hondas minimum taxable income from his livestock farming business at Boran farm [5]

QUESTION 3

Michael Hannaford is a commercial farmer in the Insiza area of Matabeleland. He carries on cattle ranching. During the second week of September 2013 the Minister of Agriculture, in terms of the 7th Schedule to the Income Tax Act, declared (through a statutory instrument) that the outbreak of foot and mouth in the region was an epidemic.

The livestock on hand as at 1 January 2013 were as follows:

120 cows, 60 tollies

4 bulls, 50 heifers

40 steers, 75 calves

Livestock movements between 1 January 2013 and 31 December 2013 were as follows:

15 calves were born on the farm during the year;

40 calves were reclassified to heifers;

25 calves were reclassified to tollies;

10 tollies were slaughtered for rations;

30 tollies were reclassified to steers; and

32 heifers were reclassified to cows.

Notes:

(i) 50 cows and 30 steers were sold for $45 000 to the Cold Storage Company and some private abattoirs in the first half of the year.

(ii) In addition to the livestock sold in (i) above, 25 cows were sold for $15 000 as a consequence of the epidemic disease.

(iii) The herds direct running expenses for the year amounted to $15000. All expenses are allowable for tax.

(iv) The following farm fixed assets were acquired/constructed during the course of the year:

Tractor (acquired and brought to use on 1 October 2013) $10 000.

A double cab Toyota, 3000cc was acquired on 1 January 2013 (but was not brought to use until 1 June 2013) for $25 000.

(v) A project for fencing the entire perimeter of the ranch started on 1 December 2013 and was due to be completed on 30 November 2014. By 31 December 2013, a quarter of the total area had been fenced at a cost of 20000.

(vi) 5 boreholes were sunk during the tax year to augment cattle water supplies at a total cost of $5 000. Additional costs amounting to $4 000 were incurred on borehole equipment. All the boreholes were functional by the drier months of October 2013.

(vii)Mr Hannaford has adopted FSVs (as shown below) for all his livestock.

Bulls-$600 each, Cows-$300 each, Heifers-$250 each, Steers-$200 each, Tollies-$200 each, Calves-$100 each

Required:

(a)Prepare a livestock reconciliation statement.(9 marks)

(b)Compute Mr. Hannafords minimum taxable income/(loss) from livestock farming for the year ended 31 December 2013.(6 marks)

(c) Tinashe bought a farm in Shurugwi on 30 September 2012 on which he commenced mixed crop farming on 1 January 2013. The following are the fixed assets acquired/constructed and used on the farm for the year ended 31 December 2013.

$

Farm implements200 000

Tractor44 000

Combine Harvester300 000

Borehole and water tank19 500

Farm workers compounds (10 units)150 000

Farm managers house 75 000

Fencing28 000

Fowl runs7 800

Tobacco barns35 000

Irrigation equipment69 000

Two passenger motor vehicles65 000

Tinashe also incurred the following expenses in the assessment year 2013.

Stumping and clearing of the land 5 000

Geophysical survey expenses3 500

Contour ridges6 000

Required

(i)State 3 tax reliefs and concessions that are available to livestock farmers under drought conditions. (3)

(ii) Compute the total allowable deductions for Tinashe for the tax year ended 31 December 2013. Maximise the deductions.(7)

QUESTION 4

Farai, Ruvimbo and Wadzanai are partners in a cattle ranching project on a farm in Marondera. They have been conducting their ranching business in partnership sharing profits in the ratio 4:3:1 respectively. The livestock on hand as at 1 January 2013 were as follows:

Bulls:

3, valued at cost of $800000, $1200000 and $1500000 respectively.

Other livestock:

Steers Cows Heifers Tollies Calves

No: 120 150 100 80 90

FSV/head 500000 600000 300000 250000 150000

During the 2013 tax year 130 calves were born on the farm and the other livestock movements were as follows:

50 cows, 100 steers and 40 tollies were sold for $180000000. 60 calves were promoted to tollies while 70 calves were promoted to heifers. 90 tollies were promoted to steers while 140 heifers became cows. 10 steers were slaughtered for rations. 5 calves died from snake bites. Livestock expenses for the 2013 tax year amounted to $60500000.

During the 2013 tax year partners incurred the following capital expenditure:

Construction of dip tank $30000000

Sinking boreholes and wells 12000000

During the year they commenced growing a special type of grass for feeding their cattle and incurred $12500000 in clearing and stumping the land. They contributed $20000000 towards the construction of a community dam available to the farming community in the area.

They sold old fencing for $2500000 which had cost $4000000 3 years ago. They purchased new fencing for paddocks for $10000000.

Required:

a) Draw up a livestock reconciliation account for the livestock movements during the 2013 tax year showing closing stock and values. [10]

b) Compute the taxable income for the partnership members for the tax year ended 31 December 2013 [15]

QUESTION 5

Waison Mauro is an accomplished cattle rancher and dairy farmer in the Nyamandhlovu area in the Matabeleland region. Waison Mauro has always maintained his livestock at the assessed carrying capacity of his land (ACCL) which is 500 herd but during the year ended 31 December 2013, he was forced to sell 60% of his herd due to the terrible drought that year. However, he intends to restock his herd in the coming agricultural season as the Meteorological Department has forecasted a normal plus rainy season. The Nyamandhlovu area was designated a drought-stricken area at the beginning of 2013 by the Minister.

His livestock as at 1 January 2013 was as follows:

Quantity Approved valuation (US$) Livestock value (US$)

Bulls 10 PPV 200 2 000

Cows 230 FSV 100 23 000

Oxen 170 FSV 80 13 600

Heifers 45 FSV 50 2 250

Tollies 30 FSV 40 1 200

Calves 15 FSV 20 300

500 42 350

Livestock activities during the year ended 31 December 2013:

2 bulls were stolen

180 cows and 120 oxen were sold due to the stress of drought.

20 cows and 30 oxen were sold to the Cold Storage Company (CSC).

20 heifers and 10 tollies were regraded to cows and oxen respectively.

10 calves were graded to heifers and 5 to tollies.

25 calves were born during the year.

Fixed asset register as at 1 January 2013:

Year acquired/constructedCost Net book value

US$ US$

Security fence 2004 10 000 10 000

Farmhouse 2004 120 000 120 000

Staff housing (3 units) 2012 60 000 60 000

Tractor 2007 18 000 nil

Boreholes 2004 7 000 7 000

Deep tanks 2011 32 000 30 400

Commercial vehicle 2004 13 000 nil

Passenger vehicle 2009 20 000 12 000

3 wells 2012 9 000 9 000

Waison Mauros policy on fixed assets has always been to claim the maximum capital allowances possible in any given year.

Waison Mauros income and expenditure details from his farming operations for the year ended 31 December 2013:

Note US$

Income

Drought induced sales 129 000

CSC sales 87 000

Profit on sale of the commercial vehicle 1 15 000

Expenditure

Stock feed 19 000

Deeping chemicals and vaccines 12 500

Wages 22 700

Livestock purchases 2 45 000

Notes

1. The commercial vehicle was sold at the market value of US$15 000 during the year.

2. Waison Mauro signed an agreement with a Manicaland farmer for the purchase of 300 cattle for US$45 000 on 21 December 2013 in order to restock his herd which was depleted due to the drought-induced sales. The terms of the agreement were that the payment was due on signing the agreement but the cattle will be delivered 14 days thereafter during which time all the legal formalities would have been completed.

Required:

(a) Explain and calculate the tax reliefs available to Waison Mauro for the year ended 31 December 2013 in connection with the drought. (4 marks)

(b) (i) Calculate the livestock closing stock value as at 31 December 2013; (5 marks)

(ii) Calculate the minimum taxable income and tax payable by Waison Mauro for the year ended 31 December 2013. (11 marks)

QUESTION 6

Mr Trevor Williams specialises in diversified farming in the fertile soils of Gweru Town. During the tax year ended 31 December 2011, the area was hard hit by drought and the farmer was forced to sale his livestock 300 herd and remained with 500 herd. The amount of taxable income from sale of livestock due to drought was $360 000 out of his Total taxable income for the year of $480 000 before claiming drought relief allowances.

The situation on the farm improved during the following year that the farmer was able to restock his farm from 500 to 800 herd at a cost of $24 000. The taxable income was $880 000 before claiming special drought relief allowances. The Assessed carrying capacity of land (ACCL) was 700 herd.

Required:-

a) Calculate adjusted taxable income for Mr. Trevor William for the two years.

(4 marks)

b) Advise the farmer about any three relief provisions available as he sales his livestock due to drought.(3 marks)

c) Define farm trading stock.(2 marks)

Advise the farmer why Agritex determines the carrying capacity of land.(2 marks)

QUESTION 7

Mr. James Wade is a specialised farmer based in Concession area of Mashonaland West. The farmer specialises in livestock production and other farm produce. The farmer submitted the following accounts to Zimra for the year ended 31 December 2011.

TRADING LIVESTOCK ACCOUNT

OPENING STOCKFSV VALUE NUMBERFSV VALUE

$ $ Normal sales $ $

1 Stud bull 1000 160 oxen 96 000

1 Stud bull 1200 40 cows 28 000

280 oxen at 500 140 000 Drought forced sales

120 cows at 60072 000 100 oxen 60 000

60 heifers at 800 48 000 60 cows 42 000

70 tollies at 70049 000 30 tollies 24 000

50 calves at 20010 000 40 heifers 32 000

PurchasesClosing stock

320 Purchases 64 000 1 stud bull 1 000

1 stud bull 1 200

356 oxen at 500 178 000

26 cows at 600 15 600

40 Tollies at 700 28 000

20 Heifers at 800 16 000

Gross profit 142 20028 calves at 200 5 600

527 400527 400

PROFIT AND LOSS ACCOUNT

$

Gross profit 142 200

Add other income

Fruits sales 60 000

Crop sales 200 000

Interest from Barclays Bank 10 000412 200

Less expenses

Farm wages 120 000

Depreciation 80 000

Livestock feed and rearing 36 000

Repairs 3 000

Spraying chemicals 40 000

Works for the prevention of soil

erosion 20 000

Allowances for Director 8 000

Toyota Ipsum for farm Director 12 000 (319 000)

Net profit 93 200

Additional information provided:-

Mr. James Wade sold 200 head of cattle on 30 June 2011. Due to severe drought that affected the farm area, he was forced to sell 230 head of cattle by the minister of agriculture. After the grazing improved, he was able to restock his farm with 300 head. The carrying capacity of land determined by Agritex was 375 head.

The following capital expenditure was incurred by the farmer during the year:-

$

Small Dam constructed 16 500

Cattle Byre Built 15 000

Fencing 10 000

Borehole sunk 20 000

House of a farm nurse 13 000

Farm managers house 18 000

Required:-

a) Define farm improvement according to the income tact Act. (1 mark)

b) Calculate taxable income from drought sales if the farm so elects. (8 marks)

c) Determine livestock at hand before restocking. (2 marks)

d) Show livestock restocking allowance for the year. (3 marks)

e) Calculate minimum taxable income for Mr. James Wade for the year ended

31 December 2011. (6 marks)

QUESTION 8

Mr Danga inherited a farm from his uncle in Mazowe area on 1 January 2012. The following were assets and livestock inherited by him at the valuation for estate duty purposes:

1. Livestock

Herd $

10 Heifers 4 000

20 Bulls 16 000

40 Calves 10 000

100 Cows 60 000

200 Oxen 120 000

370 210 000

Assets

Land $200 000

Dams $180 000

Farm improvement $120 000

Farm shed $ 25 000

Irrigation equipment $ 30 000

Fencing $10 000

2. The following stock movements occurred on the farm during the year ended 31 December 2012.

2 Tollies and 3 bulls were stolen by cattle rustlers.

16 calves were born.

40 oxen were sold to Mazowe abattoirs for $40 000

8 Heifers became cows.

15 calves became Tollies.

3. The following information relates to his farming operations:

Income

Notes $

Livestock sales 1 50 000

Sale of soya beans 500 000

Sale of tobacco 70 000

Profit from sale of irrigation equipment 34 000

Subsidy on building a dam 5 500

Expenditure

Cost of building a dam 60 000

Interest on loan acquired to build a dam 2 200

Salaries and wages 40 500

Dipping chemicals 5 000

Livestock feed 7 000

Construction of permanent road 10 000

Combine harvester 15 000

Sinking of boreholes 6 000

Other tax deductible farm expenses 5 200

Notes

1. During the year the Ministry of Mines and Mining Development listed part of the farm for mining activities. Mr Danga had to sell part his livestock so as to cope with a reduced carrying capacity of the land.

2. The irrigation equipment had a book value of 15 000 and an Income Tax Value of

$10 600.

3. The Commissioner General approved the following values for different classes of livestock:

Livestock BullsOxenCowsHeifersTolliesCalves

FSV ($)50045035030025080

Required;

(a) Prepare a livestock reconciliation to determine the value of livestock at 31 December 2012.

(b) Calculate Mr Danga minimum tax liability for the year ended 31 December 2012.

CHAPTER 4: TAXATION OF PARTNERS

QUESTION 1

Chamu and Kuda are legal practitioners operating in Harare. Their profit sharing ratio is 3:2 respectively. The partnerships business activities for the year ended 31 December 2014 were as follows.

$$

Revenue556 800

Cost of Revenue369 000

Gross profit187 800

Rental income from a joint owned property in USA 6 000

Interest received from POSB 580

Bad debt recovered 7 500

201 880

Less expenses

Salaries-staff40 000

-Chamu30 000

-Kuda35 000

Depreciation 7 900

Advertising 3 000

Bad debts 800

Dividends declared20 000

Joint life policy 1 000

Subscriptions to Law Society of Zimbabwe:

- Chamu 1 500

- Kuda 1 500

Rent, rates and electricity 1 100


Subscriptions to Golf Club:

-Chamu 1 000

- Kuda 1 300

Medical aid contributions:

- Chamu 3 600

- Kuda 3 000

Pension contributions

- Chamu 2 400

- Kuda 1 800 (157 200)

Net revenue 44 680

Additional Information:

1. Part of the general expenses of $1 500 was a penalty paid to ZIMRA for late remittance of Value Added Tax.

2. Drawings made by the partners: Chamu $19 000; Kuda $23 000

3. The following fixed assets were acquired on 1 January 2014:

Cost ($)

Office furniture 6 000

Office Equipment 15 000

2 Toyota Hilux Twin cabs for partners (2700cc) 200 000

Required:

(a) Compute the minimum joint partnerships taxable income for the year ended 31 December 2014. (18 marks)

(b) Compute the minimum tax payable by each partner for the year ended 31 December 2014. (12 marks)

[Total: 30 marks]

QUESTION 2

Ray and Royne are trading in partnership for the past four years sharing profits in the ratio 1:1 respectively. Their business has been manufacturing of building materials. For the year ended 31 December 2012, the partnerships accounts reflected a net loss of $480 000 after charging the following.

$

Depreciation of assets 40 000

Medical aid contributions: employees10 000

Ray 1 200

Royne 1 000

Electricity and water 8 000

Pension contributions employees16 000

Ray 6 200

Royne 4 800

Motor vehicle expenses (note 1)12 000

Insurance 3 000

Donations (note 2)

Vat 30 000

Computer equipment 6 000

Mercedez benz (import)18 000

Interest (note 3) 1 500

Interest on capital:Ray 1 400

Royne 1 300

Salaries and wages:employees60 000

Ray 9 000

Royne 9 000

Selling and marketing 13 000

The following information is provided

1. Royne uses the partnership motor vehicle and it was discovered by Zimra that 60% of vehicle expenses were for his private personal business.

2. During the year, the partnership gave Ray building materials amounting to $8 000 and $10 000 was given to Chinyaradzo Childrens home a registered charitable organisation.

3. Included in interest of $1 500 is $600 interest on loan used to purchase raw materials by the partnership.

Required:-

Calculate the taxable income for the partners for the year ended 31 December 2012.

(15 marks)

QUESTION 3

(a) Explain the statutory requirements for the submission of returns by partners.

(b) Explain how partners are assessed for tax on income accruing from their partnership business?

(c)

Sha and Sho are in partnership for the past four years sharing profits and losses in the ratio 2:4 respectively. The main business of the partnership is the manufacture of farm implements, the following are the activities of the partnership for the 2015 tax year.

$

Gross profit 400 000

Rental income from block of flats 40 000

Interest from Barclays Bank Zambia30 000

Dividends from OK Zimbabwe 10 000

480 000

Less: Expenses

Depreciation of assets 20 000

Medical aid: employees 12 000

: Partners, Sha $2 000 and Sho $4 0006 000

Insurance: Assets 4 200

: Life of Sho 3 000

Donation to destitute homeless persons fund 52 000

Loss on sale of generator 1 000

Pension contribution: employees 15 000

: Partners: (Sha $5 600 and Sho $5 400)11 000

Trade mission (related to partnership business): Sha3 200

Salary and wages: employees 20 000

Value Added Tax 3 800

Net profit 328 800

Additional information

(a) The partnership owned the following assets as at 1 January 2015:

Assets Original cost ($) Date purchased Income Tax Value ($)

1/1/15

Machinery 20 000 May 2012 5 000

Equipment 10 000 August 2013 5 000

Delivery trucks 42 000 February 2011 nil

Merc Benz 14 000 October 2014 7 500

Computers 4 000 January 2011 2 400

2. During the year, the partnership acquired a Ford Ranger single cab for Sho for $17 000, the car was used 30% for private purposes.

3. The generator was sold for $3 000; it was fully depreciated for tax purposes.

4. The income statement of the partnership reflected a profit of $ 328 800 after debiting expenses of $ 151 200 for 2015 Tax Year.

Required:

(a) Calculate the partnership minimum taxable income for the tax year ended 31 December 2015.

(b) Calculate the partners taxable income for the year ended 31 December 2015.

QUESTION 4

Indigenous and Empowerment trade in partnership as Indem Investments in Bulawayo, Zimbabwe. They manufacture high quality household and office furniture and exporting 50% of their products to countries in the SADC region.

You are presented with the following information relating to their partnership business for the year ended 31 December 2014:

US$ US$

Income


Unrealised exchange gains 3 000

Kingdom Bank interest received 4 500

Profit on disposal 300

1 507 800

Expenditure

Salaries and wages 300 000

Depreciation 45 000

Registration of patent 1 000

Joint partnership life policy 6 000

Insurance of business assets 15 000

School fees for children Indigenous 5 000

- Empowerment 6 000

Medical aid contributions Staff 6 580

- Indigenous 1 200

- Empowerment 1 320

Repairs 200 000

Donations 10 000

Advertising on DSTV 25 000


Rent and rates 100 000

Water and electricity 39 000 (911 100)

Net profit 596 700

Notes

(1) Salaries and wages comprised the following:

Indigenous 60 000

Empowerment 60 000

General staff 150 000

Contract workers wages 30 000

(2) Repairs were made up of the following:

Extension of warehouse for finished goods 70 000

Replacement of worn out machinery 65 000

Consultants fees for servicing of machinery 35 000

Pre-payments to suppliers of equipment maintenance services 30 000

(3) Donations were made to the 6th ZANU PF Peoples Congress held in Harare.

(4) General expenses comprised the following:

Penalty for late payment of VAT 3 000

Pension contributions staff 15 000

- Indigenous 66 000

- Empowerment 66 000

117

(5) The profit on disposal was realized from the sale of equipment for $ 700. It was initially purchased for $ 1 000 and its I.T.V at the time of sale was $ 400.

(6) The partnership profit sharing ratio is 4:5 respectively.

Required:

Calculate each partners taxable income for the year ended 31 December 2014.

QUESTION 5

Solomon and Mutsai have been in partnership for the past five years sharing their profits in the ratio 3:2 respectively. The main business of the partnership is manufacturing farm equipment for sale. The following are the activities of the partnership for the year ended 31 December 2014.

US$ US$


Rental income from block of flats 100 000

Foreign interest 30 000

Dividends from Sacro Zimbabwe 40 000

1 170 000

Operating expenses

Depreciation 40 000

Medical aid- employees30 000

Solomon 8 000 Mutsai 4 00012 000

Insurance: - business assets 10 000

Partnership survivorship policy 8 000

Donations 80 000

Loss on disposal of assets 2 000

Pension contributions: - employees 30 000

Solomon 10 800 Mutsai 10 800 21 600

Solomon attendance of trade mission 8 400

Salaries: - employees 40 000

Solomon 10 000 Mutsai 8 000 18 000

Lease premium 30 000

Grocery for Mutsai 4 000 (334 000)

Net Profit 836 000

Additional information

(1) The trade mission attended by Solomon was related to their trade and it was held in China.

(2) The lease premium was in connection with a new warehouse leased from Murray Roberts and Company for a lease period of 5 years with the option of renewal.

(3) The partnership owned the following assets as at 1 January 2014

Asset Original cost Date purchased

Machinery 50 000 2013

Furniture and equipment 30 000 2012

Delivery trucks 40 000 2012

Industrial building 100 000 2012

Toyota Landcruiser 80 000 2013

Mercedes Benz S class 120 000 2014

The partnership has always claimed maximum capital allowances.

Required:

(a) State the treatment of the partners share of profit when one of the partners withdraws from the partnership.

(b) Calculate the partners taxable income for the year ended 31 December 2014.

CHAPTER 5: CAPITAL GAINS TAX

QUESTION 1

Lamulani Moyo sold his principal private residence on 6 August 2014. His intention was to use the proceeds to buy another house which was bigger to cater for his growing family. He acquired another house in December 2012 for $80 000.

(i) He sold the initial principal private residence for $100 000.

(ii) Initially he had built the house on a stand he purchased in February 2011. The stand was worth $1 500.

(iii) The total cost of building the house amounted to an equivalent of $30 000 in January 2012 when he finished it.

(iv) In July 2012 he durawalled his house and installed a gate at a cost of $2 700.

(v) In May 2013 he extended his house by adding two bedrooms and a double garage at a cost of $5 000.

(vi) He sold his property through a real estate agent and was charged of 5% commission on the sale proceeds.

(vii) He has elected for rollover relief.

Required:

Calculate Lamulani Moyo capital gains tax payable or assessed capital loss for the year ended 31 December 2014. [20 marks]

QUESTION 2

Zama Zama (Pvt) Ltd submitted its capital gains tax returns for the year ended 31 December 2014 with the following information:

(a) Details of the property sold: Cost ($) ITV 01-01-2014($)

Warehouse (purchased 31 July 2011) 125 000 106 250

Stand (purchased 1March 2011) 25 000 25 000

Office block (purchased 28 August 2012)250 000 237 500

(b) The properties were sold on 15 October 2014.

(c) The selling price of US$1 000 000 is payable in instalments as follows:

15 October 2014 deposit of $500 000

15 October 2015 1st instalment $250 000

15 October 2016 2nd instalment $250 000

(d) The selling price was allocated as follows:

Warehouse $300 000

Stand $100 000

Office block $600 000

(e) As security for the seller, the transfer of ownership will only be affected upon payment of the last and final instalment.

(f) Agents commission is 2, 5% of selling price

(g) As a statutory requirement, withholding tax is withheld at a stipulated rate.

Required:

Compute the gains tax payable/assessed capital loss for the 3 years in question. [25 marks]

QUESTION 3

Matambanadzo (Private) Limited owns a number of breweries across the country all specialising in the brewing of opaque beer. In February 2013, the company was approached by the National Railways of Zimbabwe (NRZ) with the information that part of its premises is in the Southerton industrial sites of Harare was to be demolished to make way for the construction of a railway line. The company was given six months to 31 August 2013, in order to wind up its operations. The assets to be demolished were as follows:

CostIncome tax value

Industrial building (constructed on 30 June 2007)200 000Nil

Concrete wall (constructed on 30 June 2007)50 000Nil

Laboratory (constructed on 30 September 2007)100 000Nil

Staff canteen (constructed on 31 March 2007)100 000Nil

The NRZ offered to compensate Matambanadzo as follows:

Land (note (i))125 000

Industrial building300 000

Concrete wall70 000

Laboratory 220 000

Staff Canteen185 000

Total900 000

Notes

(i).The land was originally acquired from the city council at a cost of $12 000 on 30 April 2007.

(ii). The NRZ paid half of the compensation amount on 31 August 2013 and the balance on 28 February 2014.

Matambanadzo signed an agreement of sale on 30 September 2013 with an adjacent company for the sale of its office block at Southerton, which was not to be demolished. The office block had been constructed on 30 April 2009 for $350 000 and its income tax value on 1 January 2013 was $306 250.

The agreed selling price of the office block was $500 000 payable as to: 75% on signing the agreement of sale, and the remaining 25% on 31 January 2014.

Matambanadzo incurred legal fees totaling $50 000 in connection with the disposal of its Southerton properties (excluding the office block).

Required

Calculate the capital gains tax payable by Matambanadzo (Private) Limited as a result of the disposal of its Southerton properties, in the years ended 31 December 2013 and 31 December 2014 respectively. [30marks]

NB: Separate the office block from other properties in the computations

QUESTION 4

Farai Ndiweni. a widower aged 53 was diagnosed with a terminal illness on 24 February 2013. He decided to prepare well for his fate and move into a retirement home at Athol Evans Hospital in Harare. On 15 March 2013, Farai sold his entire shareholding of 30 000 shares in Ekhaya Holdings, a listed company. The shares were quoted at $45 a share on the date of sale and had been purchased as follows:

Number of sharesDate purchasedTotal cost($)

15 00023 April 2010150 000

15 00028 July 2011375 000

Farai Ndiweni paid a stock brokerage commission of 1.5% on the consideration amount in connection with this transaction.

On 31 March 2013, Farai Ndiweni further disposed off his 20 000 shares in Mahogany Group Limited, an unquoted company. He sold 10 000 of these shares for $1 million and donated the other 10 000 shares to Hope Alive childrens home for the terminally ill children .The 20 000 shares had all been purchased on 25 May 2011 for $800 000.

On 10 April 2013, Farai sold his residential house in Mabelreign, Harare for $830 000 and immediately purchased his retirement home at Athol Evans Hospital for $500 000. The Mabelreign house had been acquired on 19 January 2010 for $250 000 and Farai had effected improvements on the property at a cost of $45 000 in January 2011.

Farai Ndiweni incurred the following expenses in connection with the disposal of the Mabelreign property:

$

Estate agents commission43 000

Transfer fees6 450

Capital gains withholding tax124 500

Required

a) Calculate the withholding tax payable by Farai Ndiweni on the disposal of the shares [2]

b)Calculate Farai Ndiweni capital gains tax position as a result of the disposal of the shares , taking into account the effect of the withholding tax [8]

c) Calculate the capital gain and the tax applicable tax payable by Farai Ndiweni in connection with the sale of his Principal Private Residence on the assumption that he made an election for rollover relief. [15]

QUESTION 5

Eliza Nyama, a widow aged 45, decided to dispose of her principal private residence situated in Mabelreign, Harare and a holiday resort lodge situated in Nyanga and permanently relocate to South Africa, her country of origin. Eliza Nyamas immovable assets were disposed of through a local real estate company on 1 February 2014 as follows:

Principal private residence:

The Mabelreign property was acquired in 2009 at a cost of US$45 000. The improvements to the property were effected two years later as below:

Date Cost

US$

Security wall 2010 5 000

Swimming pool 2011 5 000

Outbuildings 2011 15 000

The property was sold for a total price of US$100 000. The real estate company retained 10% of the selling price as sales commission for the service rendered.

Nyanga holiday resort lodge:

The holiday resort lodge was acquired in 2009 at a cost of US$30 000. The extension to the lodge was effected in 2010 at a total cost of US$25 000. The property was sold for $85 000 and 10% of the selling price was deducted by the real estate company as the commission. The cottage had been classified as a commercial building for tax purposes and wear and tear allowances have been claimed yearly since acquisition of the building.

Ancillary expenses

US$

Legal charges 500

Transfer fees 200

Property advertisements 50

750

Required:

(a) Calculate the capital gain/loss and tax payable by Eliza Nyama in connection with the disposal of her two properties. (15 marks)

(b) State by when the capital gains tax should be remitted to ZIMRA and outline the possible consequences of non-compliance. (2 marks)

(c) In the context of Capital Gains Tax Act [Chapter 24:03], explain the following terms:

(i)Roll over relief (2 marks)

(ii) Artificial transaction (2 marks)

(iii) A company connected with another company (4 marks)

QUESTION 6

(a) Miss Loice Brown is a business woman ordinarily resident in Zimbabwe. Due to diamonds explosions in Zimbabwe, the woman decided to dispose some of her specified assets in companies in order to form a diamond mine as follows:-

Quoted Quantity CostYear % sold Market Value

Security end of end of 2012

$ $

Meikles (Private) Limited 12 000 27 600 201040%

Hunyani (Private) Limited 10 000 26 000 2011 100%4,30

The shares for Meikles (Private) Limited were inherited from her late sister with an estate valuation of $27 600 and were sold at the end of the year at $3,80 per share at the stock exchange. She was charged brokerage fee of 4% of sale proce

Documents

1 January to 30 June 2014 - CUT | CUT,Chinhoyi … · Web viewDuring the previous year, the company built a dam in Kwekwe area where the company was drawing some water for industrial