(A)Good Hope Ltd: Computation of Capital Allowances Fye 31 March 2016

Question 1

(a)Good Hope Ltd: Computation of capital allowances fye 31 March 2016:

P’000

Commercial building – P1,800,000 x 2.5%45.001

Leased truck0.001

Cleaning machines (P670,000 – 70,000) x 15%90.001

Motor vehicles:

Balance b/f P840,000 x 25%210.001

On addition P175,000 x 25%43.752

Computers:

Balance b/f (P88,000 – 40,000) x 25% = 12.002

On addition P50,000 x 25%12.501

------

Total capital allowances413.25

------

Balancing adjustment on disposal of assets:

Cleaning Computers

Machines

P’000P’000

Tax WDV b/f2815 (20 – (20 x 25%)

Sales proceeds(35)(5)

------

Balancing alce/(charge)(7)102 + 1

------

(b)Good Hope Ltd

Computation of taxable income fye 31 March 2016:

P’000P’000

Net profit for the year2,143.00

Less:

Interest income-1

Compensation400.001

Rental income-1

Capital allowances413.251

Balancing allowance10.001

Lease payment (P138 – 54)84.001

------(907.25)

------

1235.75

Add:

Contribution to an unapproved

Pension fund120.001

Lease premium (120 – 120/10)108.002

Interest re loan to pay dividends15.001

Depreciation240.001

Employer’s contribution – Pension-1

Repairs & maintenance28.001

Balancing charge7.001

------518.00

------

Taxable income1,753.75

------

Company tax – P1,753,750 x 22%385.8251

Less: WHT deducted at source:

On interest(16.00)1/2
On rental income(25.50)1/2

------

Company tax payable344.32516

------

(c)Computation of the final tax payable and interest payable on shortfalls fye 31 March 2016:

P’000

Estimated tax payable for 2015/16:

P1,800,000 x 22%396.001

Minimum instalment paid/payable to avoid interest:

P396,000 x 20%79.201

Minimum instalment required to be paid based on the actual tax payable.

P344,325 x 20%68.8651

There will be no interest charges as the instalments paid, P79,200, exceed the required instalment to be paid, P68,865. 1

Shortfall tax payable by 31 July 2016:

Actual tax payable344,325

Less quarterly tax paid (79.2 x 4 instalments)316.800

------

Shortfall tax27,5251

------

----

Question 2

2(a)Dilo Restaurant

Computation of chargeable income for the year ended 31 March 2016:

P’000P’000

Net profit for the year1,165

Add:

Partners’ wages (225+270)4952 Purchase of new utensils 27 1

Rent-1

Legal fee re tax return81 Depreciation 168 1 ------698

------

1,863

Less:

Capital allowances:

Jeep: P175,000 x 25% x 40%(17.5)2

Van: P270,000 x 25% x 60%(40.5)1

------

Chargeable partnership income1,805

------Allocation of Partnership income fye 31 March 2016:

TotalTebogoThaboEvents

P’000P’000P’000P’000

Chargeable inc1,805

Salaries(495)225270-2 ------

1,310

Share(1,310)655327.5327.53

------880 597.5 327.5 14

------

(b)Computation of taxable income for Tebogo and Tumelo for the tax year 2015/16:

TebogoTumelo

P’000P’000

Partnership income880-1/2

Salary-2001/2

House benefit in kind:

P320,000 x 10%-321

Farming income100-1/2

Less: s46(100)-1/2

Joint rental income – 50% each90901

------

Chargeable income970322

Less: approved donation(3)-1

Less: approved superannuation

Contributions (15)(15)1

------

Taxable income9523076

------

Question 3

(a)Gaborone Motor Dealers

Computation of the VAT payable for the month of May 2016:

P’000

Output VAT:

Sales – second hand vehicles - P11,380x12%1,365.62

Sales – brand new vehicles – P15,200 x 12%1,824.01

Sales – export vehicles – 0%01

Disposal of Benz – exempt01

------

Total output tax3,189.6

------

Input VAT:

Administration expenses – exempt0.01

Distribution/adverting expenses – P576,000x12%69.121

Purchases of vehicles:

2nd hand from non-registered – P5,694x12/112610.02
From registered traders – P1,900 x 12%228.01
Imported vehicles – P9,120 x 12%1,094.41

Professional fees – P210 x 12%25.21

Workshop wages – exempt0.01/2

Directors’ remuneration – exempt0.0½

Acquisition of Prado – exempt0.01

Purchase of computer – P24 x 12%2.881

Purchase of fridge – entertainment exempt0.01

------

Total recoverable input VAT2,029.6

------

VAT payable – P3,189.6 – 2,029.6 = P1,1601

------

(b)(i)Computation of the gain/loss on the disposal of GMD’s industrial building:

P’000P’000

Indexed cost:

Freehold land – cost1201/2

I.A. – Jan 1994 – Jan 2016

(1715.4-324.2)/324.2 x 1205151

------635

Factory building –cost3801/2

I.A – Mar 1996 – Jan 2016

(1715.4 – 402.2)/402.2 x 38012411/2

------1,621

Perimeter wall & gates801/2

(1715.4-448.7)/448.7 x 802263061/2

Internal paving & driveway901/2

I.A. – Aug 2003 – Jan 2016

(1715.4 – 698.0)/698.0 x 901311/2

------221

------

Total indexed cost2,783

Sales proceeds3,5001/2

------

Chargeable gain7175

------

(b)(ii)Income tax implications arising on the disposal of the industrial building:

On the disposal of the industrial building, a balancing adjustment will arise. The balancing adjustment is computed by comparing the net sales proceeds, restricted to the original cost, with the tax written down value of the building, as follows: 1

P’000

Cost380

Less: Initial allowance at 25%(95)1

Less: annual allowances – 1996 to 2015:

P380 x 2.5% x 20 years(190)2

------

Tax written down value b/f95

Sales proceeds, restricted to original cost(380)1

------

Balancing charge2855

------

(c)The finance manager has violated the fundamental principles of integrity and objectivity. The tax adviser must call for a meeting with the finance manager and the management team request them to inform BURS of the amounts that were not disclosed in the 2014/15 tax return.

If the finance manager/GMD refuse to comply with the tax adviser’s request, then the tax adviser must explain to the finance manager that he is compelled by professional conduct to report the matter to BURS. The tax adviser must also inform that such conduct from the management of GMD may compel him to resign from acting as their tax adviser. (3 marks)

(Total: 30 marks)

Question 4

(a)Tax implications of the outstanding loans between the directors and Lekaje Enterprises Ltd

The directors of Lekaje Enterprises Ltd qualify to be treated as participators of a close company because they own more than 5% of the equity shares of Lekaje Enterprises Ltd. 2

MphoLekaje’s interest free loan to Lekaje Enterprises Ltd

When a participator makes an interest free loan to a close company, he or she is deemed to receive interest at the official interest rate, 12% in this case. The deemed interest shall form part of the taxable income of the participator and taxed like in other taxable income. However, Lekaje Enterprises Ltd shall not be allowed to deduct the deemed interest in the computation of its taxable income. 2

Lekaje Enterprises Ltd’s loan to a participator (ModiseLekaje)

The loan granted by Lekaje Enterprises Ltd to ModiseLekaje shall be treated as a dividend for all the tax years that the loan remains outstanding. Accordingly, Lekaje Enterprises Ltd will be required to deduct WHT of 7.5% annually, i.e. P7,500 (P100,000 x 7.5%). 2

(b)Computation of chargeable transfers following the death of MphoLekaje:

i)All transfers made to the spouse, Mrs LeratoLekaje are exempt from CTT.

ii)ModiseTshegoSelwana

LekajeLekaje

PPP

Proceeds from loan50,00050,000-2

Villa in RSA--1,300,0001

Shares in Lekaje3,000,0003,000,000- 1

------

3,050,0003,050,0001,300,000

Allowable deduction

Of P100,000(41,220)(41,220)(17,560)3

------

Chargeable transfer3,008,7803,008,7801,282,440

------

CTT liabilities:

First P500,00016,00016,00016,000

Next P2,508,780 x 5%125,439125,439-

Next P782,440 x 5%--39,122

------

141,439141,43955,1222

------