FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
TAKE HOME TEST/ASSIGNMENT 2
COURSE NO. ACC 305 DURATION: 18 HRS DATE: 29-06-2020
TITLE OF PAPER: TAXATION PRINCIPLES
SUBJECT: ACCOUNTING TITLE OF EXAMINATION: Bachelor of Accountancy 3
1. This examination contains ONE (1) question.
2. Do NOT writ e outside the margins of your answer booklet.
3. Marks allocated for the question are as shown.
4. All workings and computations MUST be shown.
5. The use of Tippex correction fluid is NOT allowed.
6. Should you judge that there is lack of clarity in any part of the question, please make and record in writing (IN YOUR ANSWER BOOKLET) any assumptions that you may consider appropriate for purposes of answering such a question (reflecting your understanding of the question).
DO NOT OPEN THIS PAPER UNTIL YOU ARE TOLD TO DO SO BY THE INVIGILATOR.
NO. OF PAGES: 4
(Including this one)
Question – THIS IS A HYPOTHETICAL QUESTION
The following particulars relate to the financial affairs of Ushi, a resident individual, for the 2019/2020 tax year.
Ushi is a young farmer who meets the BURS requirement to disclose her farming business income with other sources of gross income. She has recently started two other businesses, one mining and the other medical equipment supplies required primarily for the COVID-19 pandemic response. She earned gross income of P1 256 452 and P356 450 from the two businesses respectively. In addition, she has earned P2 758 950 from her farming business (in respect of which she also received a subsidy of P32 150 when she purchased vaccines and pesticides) and P1 245 652 from a hotel business.
Some of the business expenditure during the current tax year follows:
• Motorcar cost P178 250 (used 50% of the time for farming, 35% for mining business and the rest of the time for hotel business).
• Purchase cost of new commercial vehicle for delivery of medical equipment is P325 420. Annual maintenance costs amount to P15 230.
• Aircraft P622 564 (included in this amount is the construction cost of P112 450 in respect of a landing strip in the farm). Ushi’s twin sister, who is a qualified pilot, flies the aircraft for all businesses (equally) owned by her sister. She was employed on 1st September at an annual salary of P652 000 and a bonus calculated at 7.5% of monthly salary for every month worked. It is noted that Ushi has been paying her pilot sister a monthly salary (excluding bonus) of P70 000. The Commissioner General of Taxes has raised issue with this payment and has determined that it is inflated and therefore not an arm’s length transaction.
• Cost of new computers is P32 412 (used equally by all businesses).
The farming business also incurred expenditure in respect of the following during the tax year:
• Building used in connection with farming operations P102 452
• Establishment of orchards and vineyards P44 400
• Pump house connected with generation of power P22 300
• Premium of P65 240 was paid in respect of the right to use a copyright for an indefinite period. The probable duration, as determined by the Commissioner General of Taxes is 19 years.
The mining business completed construction of residential accommodation for employees, these being twenty identical units at a unit cost of P35 000. The business also completed improvements to an already existing industrial building. The cost of such improvements was P224 500.
Further to the above, the farming business made the following disposals of plant and machinery during the current tax year:
• Pumping plant used for the farm borehole was sold for P12 700 on 7th May 2020. Ushi had purchased it some few years ago for P28 000.
• Other industrial plant (including farming) was sold for P33 325. It had been bought on 14th July 2016 for P66 435.
• At the beginning of the current tax year, the tax written down value of computer equipment was P66 969. Ushi sold all of this computer equipment in the current tax year for P87 958 and replaced it with new ones at a cost of P46 250. The CGOT has approved the transaction and appropriate request by Ushi.
(a) Prepare, in good form, a schedule showing the taxable income of Ushi for the 2019/2020 tax year. All workings must be shown separately and must be numbered sequentially and crossreferenced to the tax computation.
(36 marks) (b) Compute the taxabale income of Ushi for the tax year.
(c) State and explain the non-inclusion (from the tax computation) of the any of the figures stated in the question.
TOTAL = 40 marks
End of examination
RATES OF TAX STARTING 2011/2012 (Section 59)
Taxable Income (P) Tax (P)
0 -36 000 0
36 000 -72 000 0 + 5% of excess over 36 000
72 000 -108 000 1 800 + 12.5 of excess over 72 000
108 000 -144 000 6 300 + 18.75% of excess over 108 000
144 000 and above 13 050 + 25% of excess over 144 000
Table I applies to resident individuals
RATES OF CAPITAL ALLOWANCE
Nature of the allowance Allowance
Straight line annual allowances on plant or machinery at rates between 10% and 25% fixed by Commissioner General
1. Initial allowance for industrial building 25%
2. Annual allowance for industrial building 2.5%
3. Annual allowance for commercial building 2.5%
4. Heavy civil engineering plant or machinery used directly in construction 25%
5. Aircraft and motorised road vehicles 25%
6. Other self-propelled portable plant or machinery used directly in manufacture or production 25%
7. Other industrial (including farming) plant or machinery used directly in manufacture or production 15%
8. Computers 25%
9. Computer software 100%
10. Other office machinery 10%
11. Other plant or machinery (including soft furnishings) 10%
12. Farming implements [Third Schedule, Part IV 1. (a)] 100%