Technician/Level 4 Diploma (QCF)

Accounting Qualification

Question paper

Preparing business taxation computations–Botswana

(BTC-B)

Tuesday 30 November 2010 (morning)

Time allowed - 3 hours plus 15 minutes’ reading time

Please complete the following information in BLOCK CAPITALS:

Student member number / Desknumber
Venue code / Date
Venue name

Important:

This exam paper is in two sections. You should try to complete every task in both sections.

We recommend that you use the 15 minutes’ reading time to study the exam paper fully and carefully so that you understand what to do for each task. However, you may begin to write your answers within the reading time, if you wish. You must use permanent ink, preferably black, to write your answers. Correcting fluid may not be used.

You must not, during the exam, communicate with any other candidate or be in possession of unauthorised materials, such as pre-prepared notes, books, programmable calculators and dictionaries. Any of these actions will constitute malpractice and will result in disciplinary action. If you are in possession of unauthorised materials you must give them to the Supervisor before the start of the exam.

Do NOT open this paper until instructed to do so by the Supervisor.

Note:
You may use this page for your workings.
Note:
This page is perforated. You may remove it for easy reference.

Taxation tables – 2010 and 2011 tax years

Capital allowances

Writing down allowance –

Motor vehicles25

Plant and machinery15

Furniture and fittings 10

Computer equipment25

Industrial buildings25% initial allowance; 2.5% annual allowance

Corporation tax

Basic tax rate (manufacturing)5%

Additional company tax rate10%

Capital gains cost of living indices

March 1998469.9

August 2006924.2

July 20101225.1

Allowance in lieu of indexation25%

This exam paper is in TWO sections.

You must show competence in both sections. So, try to complete EVERY task in BOTH sections.

Section 1 contains 5 tasks and Section 2 contains 7tasks.

You should spend about 90 minutes on Section 1 and about 90 minutes on Section 2.Against each task is a recommended time for that task, but please note that these times are guidelines only.

There is blank space for your workings on pages 2, 5, 10, 14 and 18, but you should include all essential calculations in your answers.

Section 1 Data

You work in the tax department of a firm of chartered accountants.

Kaone Tauowned and ran an outside catering business for many years. The financial year end of the business was 31 October. Kaone sold the business on 31 August 2010.

You are given the following information that relates to Kaone’s business.

1.Her adjusted trading profit for the year ended 31 October 2009 is P214,030.

2.Her adjusted trading profit for the period ended 31 August 2010 is P168,244.

3. The capital allowances computation showed the following written down values at 31 October 2008:

Plant & machinery (cost P124,364) 42,320

Furniture & fittings (cost P35,542)7,108

Car (bakkie,75% private usage, cost P185,600) 92,800

During the period 1 November 2008 to 31 August 2010Kaone had the following capital transactions:

PurchasesP

December 2008Plant and machinery9,045

February 2009Plant and machinery27,900

August 2009Computer5,460

October 2009Furniture & fittings6,320

Disposal proceeds/scrapping

December 2008Plant machinery (cost P39,436; WDV P7,648) 5,200

February 2010Furniture & fittings (cost P10,530; WDV P1,053) Nil

On cessation of trade Kaone disposed of the rest of the business assets with proceeds as follows:

Plant and machinery65,000

Furniture and fittings8,750

Computer5,000

Kaone decided to keep the car, which had a market value of P54,000.

Businesscapital transactions

Many years ago Kaone acquired shares in QPR (Pty) Ltd for P20,000. The shares were held as a business asset. As QPR (Pty) Ltd has not been declaring dividends for the past two years, Kaone decided to dispose of the shares. She sold the shares in November 2010 for P32,600 and paid commission of P3,200 to the broker.

Note:
You may use this page for your workings.

Task 1.1(35 minutes)

Calculate the capital allowances, balancing charges/allowances and tax WDVs forthe year ended

31 October 2009.

Task 1.1, continued

Task 1.2(20 minutes)

Calculate the balancing charges and allowances for the period ended 31 August 2010.

Task 1.3(10 minutes)

Calculate the chargeable trading income for Kaonefor the 2010 tax year and for the 2011 tax year.

Note:
You may use this page for your workings.

Task 1.4(10 minutes)

Calculate the net capital gain chargeable to tax on the disposal of the business asset (shares).

Data

You have received the following e-mail from Kaone.

From:

To:

Sent:29 November 2010

Subject:Partnership taxation

HelloAAT student

I hope you can assist me with information on how partnership profits are treated for tax purposes.

A few days ago my daughter, Lorato, made me an offer to partner her in her events management business. She has been running this business for a few years and she is doing very well. She is looking at expanding the business and needs an injection of funds. She has therefore asked me to contribute P25,000 to the business in return for a 20% share of the business. Please provide answers to the following questions that I have on the taxation aspects of a partnership:

1.Is the partnership required to register for income tax?

2.Is the partnership required to file income tax returns?

3. Is the partnership liable to tax on the profits?

4.How will the partnership profits/losses be split between the partners for tax purposes?

5.If the partnership incurs a loss, can I set-off the loss against my other income?

6.At what rate of tax will my share of partnership profits be taxed?

Your response to the above questions would be appreciated.

Kaone

Task 1.5 (15 minutes)

Reply to Kaone’s emailwith answers to the specific queries raised and providing any additional information you think necessary.

From:
To:
Sent:30 November 2010
Subject:Re:Partnership taxation

This page is for the continuation of your email. You may not need all of it.

Note:
You may use this page for your workings.
Note:
This page is perforated. You may remove it for easy reference.

Section 2

Data

You are part of the tax team for a manufacturing company called Godira (Pty) Ltd. Godira holds a Manufacturing Development Order in respect of the business.

The following information is available for the year ended 30 September 2010.

1.A summary of the accounts shows:

Gross profit4,923,049

Depreciation640,110

Expenses1,612,300

Directors’ remuneration580,414

Salaries & wages1,200,8404,033,664

Net profit889,385

The expenses include:

Increase in specific provision for doubtful debts11,426

Increase in general provision for doubtful debts30,800

Legal fees – debt collection7,420

Secretarial fees – increase in share capital5,500

Speeding fines incurred by company drivers1,400

Donations to various political parties20,000

2. The capital allowances excluding buildings have already been calculated at P530,190.

3. During the year ended 30 September 2009 Godira (Pty) Ltd constructed a factory building. The factory was first put into use on 1 October 2009. The cost of the factory was:

Land200,000

Legal fees in connection with the purchase of land4,000

Cost of the building2,250,200

Total2,454,200

In July 2010 Godira (Pty) Ltd disposed of one of the company houses that was used to accommodate one of the managers for P1,100,000. The house was acquired in March 1998 for P450,000. In August 2006 the company made some improvements to the house which cost P24,120.

Note:
This page is intentionally blank. You should NOT use it for workings.

Task 2.1 (10 minutes)

Calculate the capital allowances on the industrial buildings for the year ended 30 September 2010.

Note:
You may use this page for your workings.

Task 2.2(20 minutes)

Calculate the chargeabletrading income for the year ended 30 September 2010.

Task 2.3(10 minutes)

Calculate the chargeable gain or loss arising from the disposal of the house.

Task 2.4(5 minutes)

State the tax year in which the disposal of the capital asset should be returned and the tax year to which capital loss will be carried forward.

Task 2.5(10 minutes)

Calculate the total tax payable for the year ended 30 September 2010.

Task 2.6 (10 minutes)

(a) State the dates on which self-assessment tax should have been paid and the minimum payment that should have been made each quarter to avoid incurring penalty interest.

(b)State the date on which the final self-assessment tax payment,if any, is due.

Task 2.7 (25 minutes)

Data

You have received the following e-mail from the Managing Director.

From:

To:

Sent:29November 2010

Subject:Roll-over relief on business assets

As previously advised the directors have decided to sell and replace the bagging machine which has been the cause of recent work stoppages. You mentioned that for such transactions the company can elect for tax roll-over relief. I want to discuss this with other directors and need your assistance in explaining ‘roll-over relief’. Please explain, in point form, the following:

1.The conditions that must be satisfied for rollover relief to apply on disposal and replacement of the bagging machine

2.How the roll-over relief will affect the taxation of the balancing charge arising from the sale of the current machine

3.How the roll-over relief will affect the capital allowances to be claimed on the replacement machine.

Your help in this matter is much appreciated.

Maxwell Molema

Reply to the Managing Director’s email, clearly addressing his queries.

From:
To:
Sent: 30November 2010
Subject:Re: Roll-over relief on business assets

This page is for the continuation of your e-mail. You may not need all of it.

NVQ/SVQ qualification codes

Technician– 100/2942/4 / G794 24

Unit number (BTC) – K/101/8115

QCF qualification codes

Level 4 Diploma – 50041162

Unit number (BTC) – M/103/6454

140 Aldersgate Street, LondonEC1A 4HY, UK

t: 0845 863 0800 (UK) +44 (0)20 7397 3000 (non-UK)

e: w: aat.org.uk