Tax Question Bank

UNIVERSITY OF ZIMBABWE
DEPARTMENT OF ACCOUNTANCY
WINTER SCHOOL 2018

TAX LAW & PRACTICE 1 & 2
Page 1 of 109
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
Bonus 50 000
Cash in lieu of leave 15 000
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).
Page 2 of 109
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 $4 500.
Required:
a) Calculate Mr. Munemo’s tax liability from employment for the assessment year
ended 31 December 2014. [10 marks]
b) Calculate Mr. Munemo’s tax payable on income from investments for the same
assessment ending 31 December 2014. [15 marks]
[Total: 25 marks]
QUESTION 2
Mark Mhizha is a neurologist of repute and the Head of Research in the Ministry of
Health and Child Welfare. In early 2012 while on an employment related assignment,
he was involved in an accident that led to paraplegia and him being wheelchair bound.
After his return to work in late 2012, Mark Mhizha registered a not for profit Private
Voluntary Organisation (PVO) to champion for the rights of the paraplegics within the
country. The PVO employed Mark in a part-time role and also four other people. He also
renovated and extended his private practice premises in order to make it more
accessible in light of his condition and also to accommodate his PVO related work.
Mark Mhizha’s earnings and entitlements from employment for the year ended 31
December 2013
US$
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

Page 3 of 109
(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
Page 4 of 109
––––––––––––––––
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 debtor’s 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 Mhizha’s 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 Mhizha’s PAYE for the month of December 2013 should be
remitted to ZIMRA. (1 mark)
Total [30 marks]
Page 5 of 109
SOLUTION GUIDE 2
a) (i) Tax treatment of the World Health Organisation (WHO) award and related
payment by the Ministry of Health and Child Welfare
The award is taxable since, from the information given, the originating cause of the
income is the services rendered to the Ministry of Health. (The award came as a
consequence of the research work he carried out as an employee.) The amount is
therefore included in the gross income of Mark Mhizha.
The payment by the Ministry Health and Child Welfare is also taxable as it was paid as
a consequence of the award. The amount constitutes part of Mark Mhizha`s gross
income.
(ii) Provision for impaired debts
The general provision for impaired debts is not an allowable expense. In this case 5% of
the debtors book amounting to US$9 000 is not deductible for tax purposes. The general
provision for impaired debts could easily be manipulated by taxpayers to reduce their
tax burdens and is therefore not deductible. However, the specific impaired debts
provision which refers to Ellen Cox and Peter Meki totalling US$2 000 is an allowable
expense. On the specific impaired debts, the onus still lies with the taxpayer to prove
to ZIMRA the merits of the claim.
b(i)
Mark Mhizha
Computation of tax payable from employment income for the year ended 31
Dec 2013
Gross Income $ $
Salary 25000
Accommodation
allowance 3000
Representation allowance 5000
Clothing
Allowance 1500
Bonus 2500
Cash in lieu of leave 2000
Holiday
allowance 4000
Entertainment allowance 3800
On call
allowance 4500
WHO award 35000
Achievement payment 5000
Page 6 of 109
Medical aid contr. Paid by
coy 6000
Motor vehicle benefit 4800
102100
Less Exemptions
Accommodation
allowance 3000
Clothing
Allowance 1500
Bonus 1000
Holiday
allowance 4000
On call
allowance 4500
Medical aid contr. Paid by
coy 6000
Motor vehicle benefit 4800
Income 68500
Less Allowable
Deductions
Subscriptions to the Medical Practioners Association 1200
Pension, RAF &NSSA(lower of 5325 and
5400) 5325 6525
Taxable Income 61975
Tax chargeable(35%X61975-
5400) 16291
Less tax credits
Medical credit ($4500X40%X50%) 900
Physically
disabled 900 1800
14491
Add Aids
Levy(3%X14491) 435
Tax payable 14926
Computation of tax payable from trade and investment income for the year ended
31 Dec 2013
US$
Net profit 25 000
Page 7 of 109
Add:
Motor vehicle expenses (30% x 7 500) 2250
Renovations (capital nature) 8
000
Building extension (capital &private) 12 000
Provision for impaired debts (5% of debtors book)
9 000
Less capital allowances:

Practice building (17 000 x 2·5%) (425)
Motor vehicle (10 000 x 25%) (2500)
Computer equipment (5 000 x 25%)
(1250)
Practice building renovation (8 000 x 2·5%)
(200)
–––––––
Taxable income 51875
––––––––––––––
Tax at 25% 12 969
3% AIDS levy 389
–––––––
Tax payable 13 358
–––––––––––––
(ii) Mark Mhizha’s PAYE for the month of December 2013 should be remitted to ZIMRA
on 10 January 2014.
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 $
Salary 19 800
Annual Bonus 1 600
Income from Sale of Private Clothes 6 000
Entertainment Allowance 800
Annuity for services Rendered in Denmark 600
Damages Awarded [note 1] 4 000
Purchased Annuity 16 000
Interest from the Bank 12 000
Page 8 of 109
Profit from Sale of Inheritance 14 000
Medical Shortfalls Incurred (1 800)
NSSA contributions by Employer (1 000)
Pension Contributions to Registered Pension Fund (5 800)
Compensation for Leave not taken 1 300
Employee’s 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 sister’s 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)
SOLUTION 3
a) The due date for payment of payee is on the 10th of the following month.(1 mark)
b) The three benefits which are exempted are
i) Medical Aid paid by employer to the employee.
ii) Cost of wheelchair by the employer.
iii) Pension contributions by the employer. (3 marks)
Page 9 of 109
c) Miss Huriet Davies tax computation for the year ended 31 December 2012.
Marks
$
Salary 19 800 ½
Annual Bonus (1600 – 1000) 600 1
Income from sale of private clothes - ½
Entertainment allowance 800 ½
Annuity for services rendered in Denmark - ½
Damages awarded 4 000 1
Purchased annuity (250 x 12 x 8 – 16 000) 1 000
2
8
Motoring benefit (10/12) (3 600x 9/12) 2 700 2
Housing benefit - ½
Token of appreciation 2 000 1
Canteen meals (not a benefit) - ½
Grocery allowance (160 x 10) 1600 1
Interest from the Bank - ½
Profit from sale of inheritance - ½
Compensation for leave not taken 1300 1
33 800
Less pension contributions 5 800 1
NSSA contributions employer - (4 500)
Taxable income 29 300
(up to 24 000) at 25% 6 000

(25 720 – 24 000) at 30% 1 590
7 590
Less Credits
Medical aid shortfalls (50% x 1800) (900) ½
Disability (900) ½
Wheelchair purchased by employer - ½
Tax payable 5 790
Less Paye deducted 4 700 ½
Adjusted tax payable 1 090 16
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:-
Page 10 of 109
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 fund 5 000
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) 1 800
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 son’s 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 Nickson’s 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:-
Page 11 of 109
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 Nickson’s tax payable from employment income for the year
ended 31 December 2013. (11marks)
SOLUTION 4
Tax computation for Mr. Tedious Nickson for the year ended 31 December 2012
$ marks
Salary 16 200 ½
Bonus for the year - ½
Retirement package (48000 – 15000) 33 000 1
Subscriptions received - ½
Lectureship information technology - 1
Lumpsum payment from unapproved fund - ½
Entertainment allowance 3 600 ½
Maid allowance 1 200 ½
Housing benefit (7% x 28000) x 8/12 1 307 1
Loan benefit (4%+5%) x 3600 324 1
Loan for son’s medical treatment exempt ½
Motoring benefit (4800 x 9/12 ) 3 600 ½
59 231
Less Pension contributions 3 600 ½
NSSA contributions 1 400 (5 000) ½
Funeral contributions - ½
Taxable income 54231
Less Credits
Disability credit (900) ½
Wheel chair purchased (50% x 2 400) (1 200) ½
Add 3% Aids levy
Tax liability -
Paye deducted ½
Adjusted tax payable Nil 11
marks
Investments income $
Interest Standard Chartered Bank Zimbabwe - ½
Interest POSB South Africa 4 040 ½
Rental income( 1960 x 5 months) 9 800 1
13 840
Less (wear and tear (2 ½ % x 30000) building (750) 1
Taxable income at 25% 13 090
3 273
Add 3% Aids levy 98
Tax payable 3 371
Page 12 of 109
Add Tax on foreign dividends (20% x 2440) 488 1
Royalties (20% x 5200) 1 040 1
Taxable payable 4 899
Less relief on double taxation (2 368) ½
Adjusted tax payable 2 531
Double taxation and relief Zimbabwe tax foreign tax relief
$ $ $
Foreign interest (4040 at 25% + 3% Aids levy) 1040 840 840 ½
Dividends R.S. Africa (20% x 2440) 488 640 488
½
Royalties R.S.Africa (20% x 5200) 1040 1200 1040 ½
2 368
a) Paye is withheld by the employer on the employer’s remuneration and remitted to
Zimra by the 10th of the following (1 mark)
b) Workers compensation insurance is withheld by the employers to insure their
employees against accidents at work and is payable monthly to NSSA. (2 marks)
c) Social Security NSSA is a pension scheme operated by state and the contributions
are 3% of monthly pay of the employee payable to NSSA at the end of the month.
(2 marks)
Page 13 of 109
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
Director’s 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
Elton’s pension fund contributions to the company’s 6 575

approved pension fund for the period 1 Jan 2010 to 31
December 2010
PAYE deducted for the period 1 January to 31 December 17 200

2010
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
Page 14 of 109
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 director’s 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 Elton’s 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}
INDIVIDUAL TAXATION
EMPLOYMENT INCOME
RATES OF TAX EARNED IN FOREIGN CURRENCY
Page 15 of 109
FOR THE YEAR ENDED 31 DECEMBER 2010
Segment of annual Rate of tax within Cumulative

income segment monthly income
Period I January
tax liability *
2010 to 31
December 2010 US$ % US$
0-1 920 - -
1 921 -6 000 20 816
6 001 –12 000 25 2 316
12 001 –18 000 30 4 116
18 001 and above 35
Page 16 of 109
SUGGESTED SOLUTION: SOLUTION 5
Elton Shumba
Taxable Income from employment
Year ended 31 December 2010

US $ MARKS
Salary 60,000 1
Director's fees (remuneration 13th
Sched) 2,000 2
Medical aid contributions paid by coy
(exempt) - 1
Medical expenses paid by coy
(exempt) - 1
Entertainment allowance (2,400 -
950) 1,450 2
Motoring benefit (9 x $150) 1,350 1
Purchase of vehicle [exempt s (8)(1) f para (x)] - 2
Share option (600-400) 200 2

Pension received (exempt para 6(h) 3rd
Schedule) - 1
65,000
Less:
Pension contributions (max) (5,400) 1
Page 17 of 109
Taxable income from employment 59,600 1
TAX PAYABLE
Up to $ 18,000 4,116 1
Balance 41,600 @ 35% 14,560 1
59,600
18,676
Less: Credits
Disabled person (900) 1

Elderly person's
credit (900)
16,876
Add:
3% Aids levy 506 1
17,382
PAYE deducted (17,200) 1
Tax payable on employment income 182
Page 18 of 109
TAXABLE INCOME FROM TRADE /
INVESTMENT
Rental income 9,600 1
Monthly levy (6,000) 1
Balcony (improvement) - 1
3,600
Less:
Exemption [ 3rd sched para
4 (v) ] (3,000) 1
600 1
Directors fees 500 2

Bankers
acceptances 4,000 1
Exemption [ 3rd sched para
10 ] (3,000) 1
1,000 1
Taxable income from trade/

investment 2,100 1
Page 19 of 109
Tax payable at 25.75% 541 1
Less:
WHT deducted (100) 1

Tax
payable 441 1
34
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:
Notes US $
Salary 24,000
Bonus 2,000
Entertainment allowance 1 1,600
Cash in lieu of leave 6,000
Lump sum payment from pension fund 2 36,000
Medical aid contributions paid by the company 800
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 property 4 8,000
Rental income Botswana property 5 7,000
Royalties received 6 1,500
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.
Page 20 of 109
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 Smith’s
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]
SOLUTION GUIDE 6[30 marks]
Mr
Smith
Computation of tax liability from employment income for the year ended 31
Dec 2013
Gross Income $ $
Salary 24000
Bonus 2000
Cash in lieu of leave 6000
Commutation of pension 36000
Medical aid contr. Paid
by coy 800
Motoring benefit(3600
X8/12) 2400
Benefit on purchase of car (15000-
3000) 12000
Monthly pension 1200
Page 21 of 109
86000
Less
Exemptions
Bonus 1000
Commutation of
pension(1/3X90000) 30000
Monthly pension 1200
Medical aid contr.paid by
coy 800
Motor Vehicle purchase benefit 12000 45900
Income 40100
Less Allowable
Deductions
Pension contributions(restricted to 5400) 5400
2400) 8010
Less tax credits
Medical credit(50%X500) 250
Elderly person's
credit(75X8) 600 850
7160
Add Aids Levy(3%X7160) 215
Tax payable 7375
Computation of tax liability from trade and investment income for the year ended
31 Dec 2013
$ $
Gross Income
Dividend from Zimbabwean
Company 1500
Bank Interest from Zimbabwean Barclays
Account 2500
Bank Interest from Botswana Barclays
Account(s12) 4000
Rental income Zimbabwean
property 8000
Rental income Botswana property(source
not Zim) 0
Royalties
received 1500
17500
Page 22 of 109
Less
Exemptions
Dividends from Zim coy 1500
Bank interest from Zim Barclays
account 2500
Rental Income Zim
property 3000 7000
Tax
chargeable(25%X10500) 2625
Tax payable 2704
Less WHT paid 750
Tax liability 1954
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 injuries 21 500
Salary (PAYE $4 234) 15 300
Representation allowance 2 500
Housing Allowance 9 800
Encashment of leave days 1 456
Bonus 700
Pension Contributions 1678
Retirement Annuity Fund contributions 5 000
Medical Aid Contributions 7 000
Travel Allowance 1 605
Widow’s Pension received 4 200
Prescription medicines purchased 860
Charity is granted free use of a Government vehicle, a land cruiser, engine capacity
3 200cc
Page 23 of 109
Other Income received:
Rental income and deductions in respect of a house being managed by Gabriel Real
Estates:
$
Gross rent received 48 000
Estate agent’s management fees 4 800
Repairs and maintenance 1 300
Rates and Security 1 895
Construction of a lock up garage and driveway (see note) 5 700
Mortgage bond repayment 6 500
Interest paid on mortgage bond 2 200
Insurance premium for the property 1 700
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 bank 15 000
Interest received from CABS Building Society 16 000
Dividends received from Zimbabwe Sugar Refineries (gross) 35 000
Interest received from a local commercial bank 8 250
Required
a) Compute Charity’s 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 Charity’s resultant tax liability for the year of assessment ended 31
December 2013 [10]
SOLUTION
GUIDE 7
Charity Nhema
Computation of taxable income from employment for the year
ended 31 Dec 2013
Gross Income $ $
Compensation from NSSA 21500
Salary 15300
Page 24 of 109
Housing
Allowance 9800
Leave days 1456
Bonus 700
Travel allowance 1605
Widow's pension 4200
Motoring benefit 4800
Loan from employment[(16000x(2%+5%)-16000X3%] 640
62501
Less Exemptions
Compensation from NSSA 21500
Housing
Allowance 9800
Bonus 700
Travel allowance 1605
Widow's pension 4200
Motoring benefit 4800
Loan from employment 640 45745
Income 16756
Less Allowable
Deductions
Pension,RAF(lower of 5400 and
6678) 5400
Computation of taxable income from trade and investment for the year ended 31
Dec 2013
$ $
Gross Income
Interest received from Bankers Acceptances with Metro. Bank 15000
Interest received from CABS Building
Society 16000
Dividends from Zim.Sugar Refineries 35000
Interest from local commercial bank 8250
Gross rental 48000
122250
Less Exemptions
Interest received from Bankers Acceptances
with Metro. Bank 15000
Interest received from CABS Building
Society 16000
Dividends from Zim.Sugar Refineries 35000
Page 25 of 109
Interest from local commercial bank 8250
Rental Income for elderly 3000 77250
Income 45000
Less Allowable Deductions
Estate agent's fees 4800
Repairs 1300
Rates and Security 1895
Interest paid on mortage bond 2200
SIA on garage and driveway($5700X25%) 1425
Insurance premium 1700 13320
b) Tax credits
Disability credit($75X3) 225
Medical aid contribution
($7000X50%) 3500
Medical expenses
($860X50%) 430
Elderly person's credit 900 5055
c) Computation of tax liability for the year ended 31 December 2013

$
Employment income(20%X11356-
600) 1671
Add tax on trade and investment
income (31680X25%) 7920
Tax chargeable 9591
Less tax credits 5055
4536
Add 3% Aids
Levy 136
Tax payable 4672
Less PAYE 4234
Tax liability 438
Page 26 of 109
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 engineer’s 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 Children’s 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.
Page 27 of 109
Calculate her minimum tax payable for the tax year ending on 31 December 2013.
(25 Marks)
SOLUTION GUIDE 8
Mrs. Mandi
Computation of tax payable from employment income for the year ended 31
Dec 2013
Gross Income $ $
Salary 60000
Bonus 6000
Pension 9000
Retrenchment package 30000
Restraint of trade payment(Capital nature) 0
Loan
benefit($4000X6%X1/12) 20
Loan write-off on 31 Dec
2013 4000
Motoring benefit(1800cc) 2400
Motoring benefit(4000cc) 4800
126220
Less Exemptions
Bonus 1000
Retrenchment package(1/3X30
000) 10000 11000
Income 115220
Less Allowable
Deductions
Renewal of an engineer's set of
tools 6000
Pension, RAF contr.(lower of 7600 &5400) 5400
Household living
exp.(prohibited.s16) 0
Sub. To Zimbabwe Institute of
Engineers 3600 3600
9900) 34748
Tax payable 35790
Computation of taxable income from trade and investment for the year ended
31 Dec 2013
Page 28 of 109
$ $
Gross Income
Income from rental of residential property 12000
Earnings from a poultry project 28000
Dividends from shares held in
Pamodzi(Pvt)Ltd 6000
POSB interest 1000
Annuity receipt($6000-(60000/60)) 5000
52000
Less Exemptions
POSB interest 1000 1000
Income 51000
Less Allowable
Deductions
Poultry feeds and vaccines and other allowable costs 10000
Independence day
donations(charity) 0
Donation to Mathew Rusike Child.
home(approved) 3000 13000
4
Tax chargeable
Dividends(20%X$6000) 1200
Other income ($38000-$6000)*25%) 8000
Add Aids Levy(3%X8000) 240 8240
Tax payable 9440
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 Salary 200 000
Representation allowances 24 000
Entertainment allowances 6 000
Contributions to Government Pension Fund (6 000)
Page 29 of 109
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 2500cc.
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 $100 000.
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 $250 000
PAYE deducted ($36 000)
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) 12 000
Non-resident tax on dividends paid in Slovenia 1 800
Gross rentals received from his property in Harare CBD 10 000
Gross Royalties from Mambo press for a book published in Zimbabwe which he wrote
while in Australia 20 000
Interest received from his investments in Madagascar 2 000
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.
Page 30 of 109
Required:
(a) Determine Mr Sarafina’s tax liability from employment related income for the
year ended 31 December 2014.
(b) Determine Mr Sarafina’s 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 3 520 1 700 400
Less: Administration expenses

Depreciation 180 000
General expenses 36 800
Rent 60 000
Bad debts 9 700
Donations 2 900
Advertising 14 600
Interest paid 6 000
Salaries and wages 340 000
Provision of Director’s fees 200 000
Page 31 of 109
Motor vehicle and travelling expense 450 000
Telephone, electricity and stationery 240 000 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 company’s 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
Page 32 of 109
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. Director’s fees were fixed at an AGM in January 2014
10. The asset schedule is as follows: -
ITV
31/12/12 ADDITIONS
Furniture & Fittings 16 200 6 500
Delivery Truck 800 000
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]
SOLUTION GUIDE 1
KEE LAMBADO PVT LTD

COMPUTATION OF TAXABLE INCOME FOR KEE LAMBADO (PVT) LTD FOR THE YEAR
ENDED 31.12.13
Page 33 of 109
$ $
Profit per accounts 160 400
Add: Depreciation (capital Allowance granted instead) 180 000
General expenses: Finance charges (capital) 3 500
Insurance premium (ceded) 6 000
Restraint agreement (capital) 9 000
Fine (not allowed) 500
Company formation (capital) 980
Pilferage (allowable) *1 -
Valuation fees (allowable) *2
-
Rent: Premium (9/10 x 10 000) 9 000
Unproductive rent (not used for trade) 2 000
Donations: Aids orphanage (benevolent) 1 900
Trust (allowable) *3 -
Bad debts: Loan (not for trade) 1 200
Provision 5 000
Interest: Share loan 4 000
Working capital (allowable) -
Directors' fees :( allowable) -
Recoupment 31 200 254 280
414 680
Less: Profit on sale of shares (revenue-intention) -
Profit on sale of vehicles (capital) 5 000
Bank interest (exempt) 11 000
Interest from Oak Lambado (Pvt) Ltd (revenue) -
Dividends *4 3 520
Capital Allowances (w1) 204 120 (223 640)
Page 34 of 109
TAXABLE INCOME 191 040
Workings
Capital Allowances
W1 : Furniture and Fittings
ITV 31/12/2012 16 200
W&T 1 620
ITV 31/12/13 14 580
Furniture and Fittings: Additions

Cost (6 500 + 3 500) 10 000
SIA - 25% 2 500
ITV 31/12/13 7 500
Motor vehicle
Cost 120 000
W & T 2011 at 20% 24 000
ITV 31/12/2011 96 000
W & T -2012 at 20% 19 200
ITV 31/12/12 76 800
Sale proceeds 108 000
Recoupment 31 200
Truck
Cost 800 000
SIA - 25% 200 000
ITV 31/12/07 600 000
Page 35 of 109
Total capital allowances = 1 620 + 2 500 + 200 000= 204 120
NB: Grant SIA on the additions only and W & T on other assets.
Special Notes
*1 : According to the decision made in Sanders Pvt Ltd v C. of T 1974 (SC) J. A.H.B p39
, “Losses resulting from thefts by a managing director, a director or a manager in the
position of a proprietor are not losses….arising out of trade. However, thefts by
subordinate employees…..” are allowable as deductions, as in the case at hand.
*2: The general deduction formula allows the cost of valuation of assets for fire
insurance purposes as a deduction.
* 3: Sn 15(2)r1 - Donations made to charitable trusts administered by either the Minister
of Social Welfare or Minister of Health are allowable as deductions.
*4: Para 9 of the 3rd Schedule to the ITA exempts local company dividends.
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 stock 1 280 000
Add purchases 1 100 000
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 yarn 50 000
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
Donations to Zimbabwe Research Institute 160 000
General expenses (note 4) 20 000
Lease expenses (note 5) 16 000
Page 36 of 109
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.
Assets Original Date of ITV 1/01/12 Market

Cost Purchase $ Value
$ $
Computer equipment 6 000 January 2011 4 500
Manufacturing machinery 120 000 May 2010 100 800
Furniture 8 200 September 2009 6 421 3 299
Toyota Prado 30 000 March 2012 40 000
Commercial vehicle 20 000 June 2012 10 000 18 000
Toyota Surf 16 000 September 2012
4. Included in general expenses are:- $

Audit and accounting fees 2 000
Scholarship fees: Clothing & Textiles 8 000
Interest on loan to acquire industrial building 4 000
Removal of factory stock 2 878
Loss on sale of furniture 3 122
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.
Page 37 of 109
$
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)
SOLUTION 2
a) A grant awarded is taxable in full to the company.
1
b) The advantages for the investor under EPZ are :
i) No duty to be paid on importation of capital equipment and raw materials.
ii) Sale of a specified asset – no capital gains tax payable.
iii) The first 5yrs the investor is taxed at 0%.
iv) The second 5 years the company is taxed at 15%.
v) No VAT is charged on exports of goods.
5
c) Sonnage’s tax computation for the year ended 31 December 2012.
$
Net profit for the year 400 000 ½
Add back depreciation 140 000 ½
1/2
Canteen meals 30 000
Grant 60 000 1
Acquisition of industrial building 100 000 1
Donations research institute of Zimbabwe (160 000-100 000) 60 000 2
Christmas gifts 10 000 1
Audit and accounting fees - ½
Sponsorship - ½
Interest on loan to acquire industrial building 4 000 1
Removal of trading stock - ½
Loss on sale of furniture 3 122 1
Lease premium 12 000 1
Rentals - ½
Ex-gratia payments (4 000 – 1 200) 2 800 2
Recoupment: commercial vehicle (18 0000 – 10 000) 8 000 2
829 922
Page 38 of 109
Less
Profit from sale of Toyota Prado (10 000) ½
Experiment and research (double deduction) (18 000) ½
Advertisement and promotion of blankets [double of (12000) ½
Providing samples of blankets (double deduction) (16000) ½
Electricity connection fee 6000 ½
Premium allowance (10 000) (2 000) 2
(5yrs)
Computer equipment (sia 25% x 6 000) (1 500)
½
Manufacturing machinery wear and tear (10% x 100800) (10080) ½
Scrapping allowances: furniture (6421 – 3299) (3 122) ½
Toyota Surf (sia 25% x 10 000) (2 500) ½
Industrial building (wear and tear 5% x 104 000) (5 020) ½
Minimum taxable income 743 700
22
Note: i) cost of canteen meals in entertainment – taxable

ii) cost of canteen meals to managers is taxable but employees is allowable
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 company’s gross income for the 31 December 2010 year was as follows:
US$ US$
Gross income 87 500
Expenditure:
Accountancy fees 600
Page 39 of 109
Depreciation 5 600
Rent 28 800
Salaries 40 000
Travelling expenses to South Africa to purchase a 1 200
glass blowing machine
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 34 000
January 2010)
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.
SUGGESTED SOLUTION- QUESTION 5
Page 40 of 109
MMM (Pvt) Ltd
Tax Computation
Year ended 31st December 2010 +
US $
Profit before tax 10,824

Depreciation 5,600
Accountancy fees -
Rent -
Salaries
Travelling expenses (capital) 1,200
Entertainment ( s 16(1)(m) 36
Staff Xmas party -
Pre - incorporation expenses (s 15(2) (t):
Company formation (capital)
Plant and equipment (capital)
Rent
Wages
Capital allowances
17,660
(23,500)
Tax loss (5,840)
Capital allowances
Plant and equipment
Cost 34,000
25% S.I.A. (8,500)
Page 41 of 109
I.T.V. at 31 Dec 2010 25,500
Glass blowing machine

Cost 22,000
Travelling expenses 1,200
23,200
25% S.I.A. (5,800)
I.T.V. at 31 Dec 2010 17,400
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 sales 305 000
Less: Cost of Sales 1 95 000
Donation and SAZ 2 6000
Leave passage 3 8 500
Van running expenses 4 11 900
Salaries and Wages 5 110 000
Cost of computer 6 6 000
Entertainment 7 15 000 252 400
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.
Page 42 of 109
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;
$
Food 6 000
Accommodation 4 000
Leave passage 5 000
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 annum 8 400
Agent fee 450
Interest on loan 4 000
Repairs and repainting 4 200
(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 costing 2 900
Her yearly medical check-up costing 920
Life insurance premium 1 200
Page 43 of 109
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]
SOLUTION GUIDE 4
Pauline Nyamwenda
Computation of tax payable for the year ended 31
December 2013
$ $
Net Profit 52600
Add Stock taken for private
consumption[S8(1)(h)] 1500
Donation to National Bursary-
deductible s15(2)r 0
6SAZ contributions-
deductible 0
Leave passage-not for
trade 8500
Van running expenses(25%X11900) 2925
Salary for Pauline-deductible unless
excessive 0
Cost of computer for child-private 6000
Entertainment cost 15000
Gross rent on semi--detached
house($6000X6) 36000
Gross rent on condominium
property 8400
Royalty 2000
Alimony from ex-husband-exempt para 12, 3rd
Schedule 0 80325
132925
Less Wear and tear on
Van($84000X0.8X0.8X20%X75%) 8064
Rates($3000X6/12)-other period not in production of
income 1500
Agent fee 450
Interest on loan 4000
Repairs and repainting 4200
Donation to kidney centre-s15(2)® 27000 45214
Tax @25%(25%X87711) 21928
Less Tax credits
Disabled child($75X8) 600
Wheelchair for disabled child ($2900X50%) 1450
Page 44 of 109
Pauline medical check-up
($920X50%) 460
Medical
contribution(50%X50%X$3200) 800 3310
Tax liability 18618
Add 3% Aids Levy 559
Tax payable 19177
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 improvement 5 597
Depreciation 78 750
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;
$
Land 300 000
Factory building 475 000
Total 775 000
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
Page 45 of 109
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]
SOLUTION GUIDE 5
a)-There must be a lease agreement
-there must be an obligation to effect improvements in terms of the lease agreement.
-There must be expenditure actually incurred in pursuance of such obligation
-The land or building must be used or occupied for the production of income or income
must be derived therefrom.
b)
Clay(Pvt)Ltd
Computation of taxable Income for the year ended 31 December 2013
$ $
Operating profit 450000
Add Amortisation of lease premium and improvement 5597
534347
Less Lease
premium($50000/10X10/12) 4167
Rentals($7500X9) 67500
Lease
improvement($67000/10X7/12) 3908
Factory building-Wear and Tear($475
000X5%) 23750
New plant and machinery-Wear and Tear 17496
Second hand plant and machinery-Wear and
Tear 25110 141931
Page 46 of 109
The lease improvement may only be deducted from the date the property is used for
business purposes over the lesser of the unexpired period of the lease(15years-3
months) and 10 years, based on the value specified in the lease agreement.
Wear and Tear is computed on plant and machinery using the reduced balance method
at 10% p.a. The following is the computation of W&T over the years
New Plant and Second Plant and

Mach Mach
$ $
Cost/ITV
1/1/2010 240000
Less W & T-31/12/2010 24000
Cost/ITV
1/1/2011 216000 310000
Less W & T-31/12/2011 21600 31000
ITV 1/1/2012 194400 279000
Less W&T 31/12/2012 19440 27900
ITV 1/1/2013 174960 251100
Less W&T 31/12/2013 17496 25110
ITV
31/12/2013 157464 225990
c) Tax effects for the lessor

-The lease premium of $50 000 will be included in gross income in 2013.
-The lease rentals of $67 500 ($7500X9) will be included in gross income
-The improvements value as specified in the lease agreement of $67 000, must also be
included in gross income from the date the improvements are completed , spread over
the shorter of the unexpired period of the lease (15 yrs-3 months) and 10 yrs. The
income for 2013 is $3908($67000/10X7/12).
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 Profit 702 000
Operating Expenses:
Bad and Doubtful Debts 12 940 1
Legal and Professional fees 30 510 2
Entertainment and gifts 24 570 3
Page 47 of 109
Royalties payable 50 000 4
Motor Expenses (MD’s car) 5 200 5
Car Hire 13 300 6
Amortisation of lease premium 5 000 7
Depreciation 73 240
Loss on disposal of motor car 2 820
Profit on disposal of motor car (440)
Consultative fee 77 000 8
Other Expenses 95 380 389 520
312 480
Other Operating Income:
Royalties receivable 100 000 9
Operating profit 412 480
Profit on the sale of freehold property 105 000 10
Profit on sale of shares 12 000 11
Investment income:
Zimbabwe dividends received 43 110
Interest receivable 14 840 57 950
587 430
Interest payable (7 440)
Profit before taxation 579 990
Notes
1. Bad debts and doubtful debts are as follows:
Trade debts written off 7 250
Trade debts recovered (100)
Increase in specific provision for doubtful debts 6 290
Decrease in general provision for doubtful debts (500)
12 940
2. Legal and professional expenses are as follows:
Arranging lease of new business premises 2 500
Fine for breach of environmental legislation 8 000
Page 48 of 109
Legal fees for environmental prosecution 2 700
Debt collection 17 350
30 550
3. Entertainment and gifts comprise:
Entertaining local customers 3 270
Entertaining overseas customers 4 800
Staff entertainment 11 500
Donation to National Scholarship Fund 1 500
Company calendars for customers 3 500
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 MD’s car is used for both business and private journeys. The company pays for
all the car’s costs. Private journeys accounted for 60% of the car’s 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 staff 5 000
b) Technical support 56 000
c) Payment to its employees involved in the project 7 500
d) Commissioning fee 9 000
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]
Page 49 of 109
b) What are the conditions that should met before pre-production expenditure can be
deducted? [5]
SOLUTION GUIDE 6
Agrometrics
Computation of taxable Income for the year ended 31
December 2013
$ $
Profit before taxation 579990
Add Increase in doubtful debts(disallowed) 6290
Arranging lease(capital) 2500
Fine for breach of environmental
legislation(prohibited) 8000
Legal fees for environment

prosecution 2700
Entertaining customers 3270
Entertaining overseas customers 4800
Staff
Entertainment 11500
MD's private use of
car($5200X60%) 3120
Car Hire(restricted to $10000
s16(10(k)) 3300
Depreciation 73240
Loss on disposal of
equipment 2820
Recoupment on freehold property($295000-$32000) 263000 384540
964530
Less decrease in doubtful debts(non-
taxable) 500
Amortisation of lease premium 1000
Profit on disposal of
motor car 440
Profit on sale of shares(capital
nature) 12000
Zimbabwean dividend(exempt) 43110
Profit on sale of freehold property 105000
Interest receivable(taxed at
source) 14840 176890
Taxable
Income 787640
Notes
Page 50 of 109
-Doubtful debts, whether specific or general are disallowable. Because the provision
for doubtful debts is not deductible, a decrease in the provision is not taxable.
-the fine for breach of environmental legislation is disallowable, so are the legal fees
for environmental prosecution. The expenses are not a requirement in carrying out a
taxpayer’s trade, but a punishment for the breach of a specific provision of the law.
-Entertainment expenses whether incurred for purposes of trade or private purposes
are disallowed in terms of s16(1)(m) of the ITA.
-Lease premium is a deductible expense to a lessee in equal instalments over the
shorter of the lease period or 10yrs. The annual allowance is therefore
$6000($60000/10yrs).
b) The expenditure is deductible under s15 (2)(t) subject to the following
conditions.
-A trade must be carried on by the taxpayer
-The expense must be incurred within 18 months prior to the commencement of trade.
-The expense must be incurred in the preparation of a trade
-The expense must qualify as a deduction under s15 (2) (a) of the ITA.
-The expense must be deducted when trade commences.
QUESTION 7
Sunroof Plc, a manufacturing company, incurred the following expenses during the year
ended 30 September 2013:
$
Cost of land 345 000
Stamp duty on the purchase of the land 5 000
Legal fees on the Sale and Purchase Agreement 3 000
Cost of construction of the buildings:
A factory 300 000
A storage building (Note 1) 54 000
A canteen and restrooms 36 000
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
Page 51 of 109
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 Plc’s capital allowances in terms of para 2, 4 th 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]
SOLUTION GUIDE 7
An industrial building is one which is a factory or similar premises or a building used for
the manufacture of goods or materials by subjecting them to process or for the storage
of goods manufactured by the taxpayer.
-Industrial buildings include; hotels in respect of which a permanent liquor or casino
license is held.
-Dwelling houses, retail premises and offices are specifically excluded.
-The cost of an industrial building allowed for tax deduction includes only the
expenditure incurred on the construction or acquisition, excluding the cost of land.
-Where part of the building is used for a non-qualifying purpose, it is ignored if the
usage is less than 50% and claimed in full if it is at least 50%.
-Wear and Tear is allowed on a straight line basis at 5% per year; no matter the period
of use is less than 12 months.
-Industrial buildings have capital allowance life of 20 years.
-SIA is only granted on constructed industrial buildings, while purchased buildings do
not qualify for SIA.
b) Computation of capital allowances

Asset Cost/ITV($) Rate SIA Wear ITV($)
&Tear($)
Land N/A N/A N/A N/A N/A
Factory 300 000 25% 75 - 225
000 000
Storage building 54 000 25% 13 - 40 500
500
Page 52 of 109
Canteen 36 000 25% 9 000 - 27 000
Living quarters for factory N/A N/A N/A N/A N/A
workers(disqualified)
Living quarters for admin staff 120 000 25% 30 - 90 000
000
Machinery 873 000 25% 218 - 656
750 250
Total 345
750
c) The expenditure on cutting, leveling of land is capital in nature because it is incurred

on an item of capital nature. It should be capitalized to form part of the cost of
machinery.
-A storage building is an industrial building as defined by para. 1 of the 4th Schedule
ITA…i.e., buildings for storing materials, finished goods, etc…are all industrial
buildings.
- Canteens and storerooms when used together with a factory are also classified as
industrial buildings.
d) A warehouse is an industrial building provided such building is used to store goods
manufactured by the taxpayer.
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 sister’s husband to enable
them to take a technical course related to Mr Tima’s 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 employee’s
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:
Page 53 of 109
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.
Page 54 of 109
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]
SOLUTION GUIDE 8
Workings
W1.Capital Allowances
(i)Industrial Building (ii) Storeroom
Cost 5 000 000 Cost 300 000
Interest 160 000 S I A (25%) 75 000
Fencing 10 000
5 170 000 225 000
S I A (25%)*1 1 292 500
3 877 500
(iii)Plant (iv) Tractor
Cost 167 000 Cost 600 000
+ Transport 10 000 S I A-25%*3 150 000

+ Installation*2 2 000 450
000 179 000
S I A (25%) 44 750
134 250
(v)Benz (vi) Canteen
Cost 800 000 Cost 600 000
W & T (20%) 160 000 S I A-25% 150 000
640 000 450 000
75% x160000=120000 *4
.
(vii) Showroom
Page 55 of 109
Cost 200 000
W &T –2,5% *5 5 000
195 000
COMPUTATION OF TAX LIABILITY FOR TIMA FOR THE YEAR ENDED 31/12/13
$ $
Net profit per accounts 150 000
Add
Bursaries – Cousin (allowable) -
-Stepsister *6 8 000
Ex-gratia *7 24 800
Pension (allowable) -
SACA (allowable) -
Travelling – capital 10 000
Donation (Allowable-business motive) -
Repairs –Tree 2 000
-Underpinning *8 -
Fencing 10 000
Installation 2 000 406 800
556 800
Less
S I A (w 1)-Para –2-4th Sch (1 712 250)
W & T (w 1)- Para 3- 4th Sch (125 000)
Section 15 (2) t-Preliminary *9

-Interest – Raw materials (50 000)
-Salaries (200 000)
-Connection (600 + 1200) (1 800) (2089050)
ASSESSED LOSS ( 1532250)
Page 56 of 109
Special Notes
*1 Interest on money borrowed to acquire capital assets is capitalized if incurred before
the asset is brought into the business of the taxpayer. The interest which is payable for
the same purpose after the asset has been brought into the business of the taxpayer is
allowable as a deduction. In the case of C.I.R v Genn & Co Pvt Ltd 20 S.A.T.C 113 A.G.R
p43, it was held that “interest paid on money borrowed …..constituted expenditure…in
the production of income whether the loan was for the acquisition of fixed or floating
capital”. The cost of fencing or erecting a durawall can be capitalized to the cost of
the main building.
*2 Costs incurred in the acquisition, transportation and installations of capital assets
form part of the cost of such assets.
*3 SIA can still be granted on second-hand movables but cannot be granted on second-
hand/purchased immovables.
*4 SIA is not granted on movables which are used to the extent of less than 90% for
trade. The W & T in this case is further apportioned on the basis of business usage.
*5 A showroom is a Commercial building and cannot be granted SIA except if it is located
in a designated growth point area. The rate of W & T for Commercial Buildings is 2.5%.
*6 Such bursaries are allowable as deductions in terms of Sn 15(2) p of the ITA .The
person taking up the training should not be a person “connected to the taxpayer” (see
the mentioned section). In cases like this where the taxpayer is a near relative, the
person attending the course should not be the taxpayer himself or his near relative,
like the husband of Mr Tima’s step-sister. However, a cousin is not a near relative as
per the definition of the term in Sn 2 of the ITA.
*7 Ex-gratia payments are allowable in terms of Sn 15(2)q of the ITA , subject to the
following limits :
-Ex-employee/Partner $500 per
annum
-All dependants of ex-employee or partner $200 per annum
Notice that if the payments made under similar circumstances to ex-employees or
partners who retired due to injury, infirmity or old age where such payments are
obligatory (usually as provided for in the contract of employment), the amounts are not
limited to the stated figures. Notice also, that the pension payments of $36 000 do not
take the same form of pension contributions, which are limited to $5 400. These are
payments made to a former employee.
*8 The removal of a tree is not a repair but an improvement as pointed out in the case
of Rialto and Varialli v C. of T.J.343 I.T.C 1213,36 S.A.T.C AHB p47, where it was held
that “the felling…..must be categorized as an improvement”
*9 Preliminary expenditure is allowable in terms of Sn 15(2)t of the ITA provided that it
is revenue in nature, is claimed in the first year of trade and was incurred not more
than 18 months prior to the commencement of trade.
QUESTION 9
Zex (Pvt) Ltd is a new manufacturing company operating in Guruve. In its first year
ended 31 December 2015, it produced the following financial information:
Page 57 of 109
Income US$ 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
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
Page 58 of 109
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 Profit 130 000
Dividends received from Telecel Zimbabwe 5 000
Bad debts recovered 7 500
142 500
Operating expenses
Depreciation 1 000
Administration Expenses 1 500
Herdsmen’s wages 900
Livestock feed 3 000
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
Page 59 of 109
 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 bulls 12 000
50 cows 38 000
20 Heifers 14 500
30 Tollies 22 500
10 Steers 11 000
Page 60 of 109
Mr Honda’s 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 expenses 7 500
Sinking boreholes and wells 12 000
Dip tanks 15 300
Construction of staff housing (3 units) 60 000
Tractor 38 500
Mr.Honda’s 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:
$
Cows 1 000
Tollies 800
Heifers 800
Steers 750
Calves 200
On 29 December 2013, when the government lifted the quarantine, Mr Honda purchased
16 cows for $14 200 for restocking purposes. The ACCL of the farm is 70 livestock.
Required
a)Prepare a livestock reconciliation and valuation statement [10]
b) Compute tax reliefs that are applicable to Mr Honda and any other concessions
applicable to him under the following Schedules of the Income Tax Act [Chapter 23:06];
(i)7th Schedule [7]
(ii)4th Schedule [3]
(c) Calculate Mr Honda’s minimum taxable income from his livestock farming business
at Boran farm [5]
SOLUTION GUIDE 2
a)
Mr Honda
Page 61 of 109
Livestock reconciliation and valuation statement for the year ended 31
December 2013
Details Bulls Cows Heifers Tollies Steers Calves Total
Purchases 4 66 20 30 10 130
Births 13 13
Promotion
In 15 8 8 31
Total In 4 81 20 38 18 13 174
Sales 58 58
Stolen 2 2
Rations 4 4
Promotion
Out 15 8 8 31
Total Out 2 58 15 8 4 8 95
Closing
Stock 2 23 5 30 14 5 79
FSV/PPV($) 3000 1000 800 800 750 200
Closing
Stock($) 6000 23000 4000 24000 10500 1000 68500
b (i)
Enforced Sale Relief $ $
Sales(32 cows) 41600
Less Cost of sales
Purchase(32X$1000) 32000
Livestock
expenses(32/63X$7500) 3810 35810
Taxable Income 5790
Tax relief(2/3X5790)=$3860
Restocking Allowance Herd

Livestock before
purchase(79-16) 63
ACCL 70
Livestock to be purchased 7
Actual purchase 16
Excess 9
$14200X50%X7/16=$3106
Sinking of boreholes and wells (100%) $12,000
Page 62 of 109
b (ii)
$ $
Dip tanks (SIA-15300X25%) 3825
Staff housing(SIA-
25%X60000) 15000
Tractor (SIA-$38500X25%) 9625
Total capital allowances 28450
c)
Computation of minimum taxable income for the year ended 31 December
2013
$ $
Gross Income
Sales(32000+41600) 73600
Closing stock 68500
142100
Less Allowable deductions
Purchases(98000+14200) 112200
Restocking Allowance 3106
Capital Allowances 28450
General Livestock expenses 7500 151256
(9156)
Less Enforced sales relief (3860)
Assessed Loss (13016)
Notes
1. If an election is made, the income from enforced sales is taxable over 3 years in
equal instalments i.e. $1930 per year. Where there is no opening stock, the closing
stock can be used as the average stock. For the purposes of apportioning livestock
expenses, the closing stock is the livestock on hand before purchase to restock i.e.
63(79-16).This is because, the farm has hardly expended expenses in the new purchase.
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
Page 63 of 109
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 herd’s direct running expenses for the year amounted to $15·000. 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 20·000.
(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. Hannaford’s 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 implements 200 000
Tractor 44 000
Combine Harvester 300 000
Page 64 of 109
Borehole and water tank 19 500
Farm workers’ compounds (10 units) 150 000
Farm manager’s house 75 000
Fencing 28 000
Fowl runs 7 800
Tobacco barns 35 000
Irrigation equipment 69 000
Two passenger motor vehicles 65 000
Tinashe also incurred the following expenses in the assessment year 2013.
Stumping and clearing of the land 5 000
Geophysical survey expenses 3 500
Contour ridges 6 000
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)
SOLUTION GUIDE 3
a)
Michael Hannaford
December 2013
Opening Stock 4 120 50 60 40 75 349
Births 15 15
Promotion In 32 40 25 30 0 127
Total In 4 152 90 85 70 90 491
Sales 75 30 105
Rations 10 10
Promotion Out 32 30 65 127
Total Out 0 75 32 40 30 65 242
Closing Stock 4 77 58 45 40 25 249
FSV/PPV($) 600 300 250 200 200 100
Closing Stock($) 2400 23100 14500 9000 8000 2500 59500
b)
Enforced Sale Relief $ $
Page 65 of 109
Sales 15000
Less Cost of sales
Purchase(25X$300) 7500
Livestock
expenses[(25/299X$15000) 1254 8754
Taxable Income 6246
Tax relief(2/3X6246)= 4164
Computation of minimum taxable income for the year ended 31 December 2013
$ $
Gross Income
Livestock sales-first half 45000
Closing stock 59500
Enforced sales 15000
119500
Opening stock 78400
Sinking boreholes 5000
Fencing 20000
Capital Allowances:
Tractor(25%X10 000) 2500
Toyota Double
Cab(25%X10 000) 2500
Borehole
equipment(25%X$4000) 1000
Direct herd expenses 15000 124400
(4900)
Less Enforced sales relief (4164)
Assessed Loss (9064)
c (i)
-Enforced sale tax relief
-Restocking Allowance
-Carry forward of assessed losses for a max.period of 6 years
c(ii)
Computation of Allowable Deductions for the year ended 31 December
2013
$
Para 2, 7th Schedule Allowances
Borehole & Water tank 19500
Page 66 of 109
Fencing 28000
Stumping and clearing of land 5000
Geophysical survey expenses 3500
Contour ridges 6000
Capital Allowances-SIA
Farm implements(25%X200000) 50000
Tractor(25%X44000) 11000
Combine harvester (300000X25%) 75000
Farm worker's compounds 37500
Farm manager's house(exceeds limit) 0
Fowl runs (7800X25%) 1950
Tobacco barns (35000X25%) 8750
Irrigation equipment (69000X25%) 17250
Two PMVs (10000X2X25%) 5000
Total Deductions 268450
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 $800 000, $1 200 000 and $1 500 000 respectively.
 Other livestock:
Steers Cows Heifers Tollies Calves
No: 120 150 100 80 90
FSV/head 500 000 600 000 300 000 250 000 150 000
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 $180 000 000. 60 calves were promoted
to tollies while 70 calves were promoted to heifers. 90 tollies were promoted to steers
Page 67 of 109
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 $60 500 000.
During the 2013 tax year partners incurred the following capital expenditure:
Construction of dip tank $30 000 000
Sinking boreholes and wells 12 000 000
During the year they commenced growing a special type of grass for feeding their cattle
and incurred $12 500 000 in clearing and stumping the land. They contributed
$20 000 000 towards the construction of a community dam available to the farming
community in the area.
They sold old fencing for $2 500 000 which had cost $4 000 000 3 years ago. They
purchased new fencing for paddocks for $10 000 000.
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]
a)
Farai, Ruvimbo & Wadzanai

December 2013
Opening
Stock 3 150 100 80 120 90 543
Births 130 130
Promotion
In 140 70 60 90 0 360
Total In 3 290 170 140 210 220 1033
Sales 50 40 100 190
Deaths 5
Rations 10 10
Promotion
Out 140 90 130 360
Total Out 0 50 140 130 110 135 560
Page 68 of 109
Closing
Stock 3 240 30 10 100 85 473
FSV/PPV(
$) 600000 300000 250000 500000 150000
Closing 3 500 1440000 900000 250000 500000 127500 2182500
Stock($) 000 00 0 0 00 00 00
b)
Computation of minimum taxable income for the year ended 31
December 2013
$ $
Gross Income
Sales 180000000
Closing stock 218250000
398250000
Opening stock 217000000
Livestock expenses 60500000
Fencing 10000000
Sinking boreholes and wells 12000000
Clearing and stumping of land 12500000
Construction of dam 20000000
SIA on dip tank
(25%X30000000) 7500000 339500000
Joint taxable income 58750000
Shared:
Farai(4/8) 29375000
Ruvimbo(3/8) 22031250
Wadzanai(1/8) 7343750
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:
Page 69 of 109
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/constructed Cost 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 Mauro’s policy on fixed assets has always been to claim the maximum capital
allowances possible in any given year.
Waison Mauro’s 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
Page 70 of 109
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)
SOLUTION GUIDE 5
a) Waison Mauro qualifies for enforced sale tax relief since he was forced to sell 60% of
his livestock herd due to drought. The taxable income from such a sale is taxable over
3 years in equal yearly instalments commencing with the year of sale.
$
Sales 129 000
Less Purchases (180X100+120X80) (27 600)
Direct herd expenses [(300/(500+173)/2)X54200) (48 321)
Relief in 2013=53079X2/3=$35 386
On restocking the livestock that was depleted due to drought, Mauro can claim a
restocking allowance of 50% of the purchase price of every animal purchased for the
sole purchase of restocking his herd.
$45 000X50%=$22 500
b)(i)
Waison
Mauro
December 2013
Details Bulls Cows Oxen Heifers Tollies Calves Total
Opening
Stock 10 230 170 45 30 15 500
Births 25 25
Promotion
In 20 10 10 5 0 45
Page 71 of 109
Total In 10 250 180 55 35 40 570
Theft 2 2
Drought
sales 180 120 300
CSC Sales 20 30 50
Promotion
Out 20 10 15 45
Total Out 2 200 150 20 10 15 397
Closing
Stock 8 50 30 35 25 25 173
FSV/PPV($) 200 100 80 50 40 20
Closing
Stock($) 1600 5000 2400 1750 1000 500 12250
b(ii)
Computation of minimum taxable income and tax payable for the year ended 31 December
2013
$ $
Gross Income
Drought induced sales 129000
CSC Sales 87000
Recoupment on sale of commercial vehicle 13000
Closing stock 12250
241250
Opening stock 42350
Stock feeds 19000
Deeping chemicals & vaccines 12500
Wages 22700
Livestock purchases 45000
Restocking Allowance 22500
Staff Housing (60000X25%) 15000
Dip tank (32000X25%) 8000
Wells 0 187050
Taxable income before relief 54200
Less Enforced sale tax relief 35386
Tax chargeable(25%X18814) 4704
Add 3% Aids Levy 141
Tax liability 4845
Page 72 of 109
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)
SOLUTION 6
a) Taxable income Trevor Williams for two years.
Year 1 $
Total taxable income for the year 480 000
Less (2/3 + 360 000) (240 000) (2 marks)
Year 2
Current taxable income 880 000 (Plus
1/3 of 360000 120 000
Taxable income 1 000 000 (2 marks)
b) The three relief provisions which will be given a famer when he sales his livestock
due to drought are.
(i) He can claim restocking allowance as a deduction.
(ii) Assessed loss incurred will be carried forward for six years.
(iii) Taxable income from drought sale will be spread taxed over 3 years. (3
marks)
c) i) Farm trading stock is livestock acquired for breeding purposes. (2
marks) (ii) The purpose of determining carrying capacity of land is to avoid
overgrazing. (2 marks)
QUESTION 7
Page 73 of 109
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 STOCK FSV VALUE NUMBER FSV 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 600 72 000 100 oxen 60 000
60 heifers at 800 48 000 60 cows 42 000
70 tollies at 700 49 000 30 tollies 24 000
50 calves at 200 10 000 40 heifers 32 000
Purchases Closing 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 142 200 28 calves at 200 5 600
527 400 527 400
PROFIT AND LOSS ACCOUNT

$
Gross profit 142 200
Add other income
Fruits sales 60 000
Crop sales 200 000
Interest from Barclays Bank 10 000
412 200
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
Page 74 of 109
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 manager’s 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 7
a) Farm improvement is a permanent structure constructed by the taxpayer used for
farming operations by the farmer excluding structures of permanent nature found in
paragraph 2 of the 7th schedule such as a homestead.
(1 mark)
b) Taxable Income from drought sales
$
Sales 158 000
Less 100 oxen x 500 50 000
60 cows x 600 36 000
30 tollies x 700 21 000
40 heifers x 800 32 000
139 000
230 x 36 000 15 712 154 712
582 + 472
Taxable income 3 288 (8 marks)
Page 75 of 109
3 years 1 096
Livestock at hand before restocking
Opening stock - Sales

582 – 430 - 152 (2 marks)
Restocking allowance =AxB
2 C
= 64 000 x 375 – (582 – 430)
2 320
= 64 000 x( 375 – 152)
2 320
= 14 272 000
640
= $22 300 (3 marks)
Minimum taxable Income for Mr James Wade for the year ended 31 December 2011
$ marks
Net profit 93 200
½
Add depreciation 80 000
½
Directors allowances 8 000
½
Toyota Ipsum for Director 12 000
½
193 200
Less:-
Restocking allowance 22 300
Small dam 16 500
½
Cattle Byre built (sia 25% x 15 000) 3 750
½
Fencing 10 000
½
Borehole 20 000
½
Toyota Ipsum (sia25% x 10 000) 2 500
½
House of a nurse (sia 25% x 18 000) 3 250
½
Interest from the bank 10 000
½
Farm manager’s house (sia 25% x 18 000) 4 500 (92 800)
½
Page 76 of 109
QUESTION 8
Mr Danga inherited a farm from his uncle in Mazowe area on 1 January 2015. 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 2015.
 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
Page 77 of 109
Notes $
Livestock sales 1 40 000
Sale of soya beans 400 000
Sale of tobacco 60 000
Profit from sale of irrigation equipment 2 4000
Subsidy on building a dam 4 500
Expenditure
Cost of building a dam 50 000
Interest on loan acquired to build a dam 1 200
Dipping chemicals 4 000
Livestock feed 8 000
Construction of permanent road 20 000
Combine harvester 15 000
Sinking of boreholes 5 000
Other tax deductible farm expenses 4 200
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 14 000 and an Income Tax Value of
$10 500.
3. The Commissioner General approved the following values for different classes of
livestock:
Livestock Bulls Oxen Cows Heifers Tollies Calves
FSV ($) 500 450 350 300 250 80
Required;
(a) Prepare a livestock reconciliation to determine the value of livestock at 31
December 2015.
(b) Calculate Mr Danga minimum tax liability for the year ended 31 December 2015.
Page 78 of 109
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 partnership’s business activities for the year ended 31
December 2014 were as follows.
$ $
Revenue 556 800
Cost of Revenue 369 000
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-staff 40 000
-Chamu 30 000
-Kuda 35 000
Depreciation 7 900
Advertising 3 000
Bad debts 800
Dividends declared 20 000
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.
Page 79 of 109
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 partnership’s 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 partnership’s accounts reflected a net loss
of $480 000 after charging the following.
$
Depreciation of assets 40 000
Medical aid contributions: employees 10 000
Ray 1 200
Royne 1 000
Electricity and water 8 000
Pension contributions employees 16 000
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: employees 60 000
Ray 9 000
Royne 9 000
Selling and marketing 13 000
Page 80 of 109
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 Children’s 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.
$
Rental income from block of flats 40 000
Interest from Barclays Bank Zambia 30 000
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 $4 000 6 000
Insurance: Assets 4 200
: Life of Sho 3 000
Donation to destitute homeless person‘s fund 52 000
Loss on sale of generator 1 000
Pension contribution: employees 15 000
: Partners: (Sha $5 600 and Sho $5 400) 11 000
Trade mission (related to partnership business): Sha 3 200
Salary and wages: employees 20 000
Value Added Tax 3 800
Net profit 328 800
Additional information
(a) The partnership owned the following assets as at 1 January 2015:
Assets Original cost ($) Date purchased Income Tax Value ($)
Page 81 of 109
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
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
Page 82 of 109
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
 Consultant’s 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 People’s 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 partner’s 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
Page 83 of 109
Foreign interest 30 000
Dividends from Sacro Zimbabwe 40 000
1 170 000
Operating expenses
Depreciation 40 000
Medical aid- employees 30 000
Solomon 8 000 Mutsai 4 000 12 000
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.
Page 84 of 109
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
Page 85 of 109
(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:
Cost Income tax value

Industrial building (constructed on 30 June 2007) 200 000 Nil
Concrete wall (constructed on 30 June 2007) 50 000 Nil
Laboratory (constructed on 30 September 2007) 100 000 Nil
Staff canteen (constructed on 31 March 2007) 100 000 Nil
The NRZ offered to compensate Matambanadzo as follows:

Land (note (i)) 125 000
Industrial building 300 000
Concrete wall 70 000
Laboratory 220 000
Staff Canteen 185 000
Total 900 000
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 $50 000 in connection with the disposal of
its Southerton properties (excluding the office block).
Page 86 of 109
Required
Calculate the capital gains tax payable by Matambanadzo (Private) Limited as a result
of the disposal of its Southerton properties, in the years ended 31 December 2013 and
31 December 2014 respectively.
[30marks]
NB: Separate the office block from other properties in the computations
SOLUTION GUIDE 3
Matambanadzo (Pvt)Ltd
(w1)Calculation of capital allowances and recoupment-Southerton
Properties
Selling
Asset Price($) ITV($) PR($) CA($) AR($)
Industrial Building 300000 0 300000 200000 200000
Concrete Wall 70000 0 70000 50000 50000
Laboratory 220000 0 220000 100000 100000
Staff Canteen 185000 0 185000 100000 100000
Total 450000
Computation of Capital Gains Tax liability for the years ended 31

December…
2013
$ $
Gross capital amount 900000
Less recoupment(w1) (450000)
450000
Cost:
Land 12000
Industrial building 200000
Concrete wall 50000
Laboratory 100000
Staff Canteen 100000
462000
Less Capital Allowances (450000)
Inflation Allowance
$12000X2.5%X7yrs 2100
$200000X2.5%X7yrs 35000
$50000X2.5%X7yrs 8750
$100000X2.5%X7yrs 17500
$100000X2.5%X7yrs 17500
Selling costs 50000 (142850)
Page 87 of 109
Potential capital gain 307150
Less Suspensive sale
relief(450000/900000X307150) (153575)
Capital gain 153575
Tax payable@20% 30715
2014
Suspensive sale relief b/fwd 153575
Less Suspensive sale allowance(0/900000X307150) 0
Capital gain 153575
Office Block
Computation of capital gains tax liability for the year ended 31
December..
2013
$ $
Gross capital amount 500000
Less recoupment(350000-
306250) (43750)
456250
Cost 350000
Less Capital Allowances (43750)
306250
Inflation Allowance(350000X2.5%X5) 43750 350000
Potential capital gain 106250
Less Suspensive sale
allowance(125000/500000X106250) (26563)
Capital gain 79687
2014
Suspensive sale relief b/fwd 26563
Less suspensive sale relief 0
Capital gain 26563
Tax payable@ 20% 5313
QUESTION 4
Page 88 of 109
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 $45 a share on
the date of sale and had been purchased as follows:
Number of shares Date purchased Total cost($)
15 000 23 April 2010 150 000
15 000 28 July 2011 375 000
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 children’s 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 agent’s commission 43 000
Transfer fees 6 450
Capital gains withholding tax 124 500
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 Nyama’s immovable
assets were disposed of through a local real estate company on 1 February 2014 as
follows:
Page 89 of 109
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
Page 90 of 109
(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 Cost Year % sold

Market Value
Security end of end of 2012
$ $
Meikles (Private) Limited 12 000 27 600 2010 40%
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 proceeds by the
agent.
Required:-
Calculate capital gains on sale of shares for Miss Loice Brown for the year ended 31
December 2012. (9 marks)
(b) Mrs Lieza Rossen sold her property which she acquired in May 2009 at a cost of $40
000 and its market value at that date was $48 000. She incurred transfer duty of $6
000 when she purchased the property. The property was used for commercial purposes
whilst receiving rentals of $5 000 per month from the estate agents. The property
was sold for $80 000 in December 2012 and the I.T.V. at date of sale was $42 550 and
in 2010 she built a garage at a cost of $10 000 which was used by the tenant. She
incurred selling costs amounting to $6 600 on the disposal of her property.
Required:-
i) Calculate capital gains tax payable for Mrs Lieza Rossen for the year ended 31
December 2012. (5 marks)
ii) Advise Mrs. Lieza Rossen three options she can defer payment of capital gains tax.
(6 marks)
QUESTION 6
Miss Loice Brown’s capital gains tax computation for the year ended 31/12/12
$ marks
1. Sale of Meikles shares (4800 x $3,80) 18 240 2
Less cost (4800 x $2,30) 11040 2
Inflationary allowance
Cost 11040 x 1 ½ x 3 years 828 1
Page 91 of 109
Brokerage commission (4% x 18240) 730 (12 598) 1
Capital gains 5 642
$
2. Sale of Hunyani shares (10000 x $4,30) 43 000 ½
Less cost of 10000 shares 26 000 ½
Cost 26000 x 2 ½ % x 2yrs 1 300 1
Brokerage commission (4% x 43000) 1 720 (29 020
1
Capital gains 13 980 9 marks
b) sale of property
less recoupment (46 000 – 42 550) 80 000 ½
( 3 450) 1
76 550
Less cost 46 000
Garage 10 000
56 000
$ marks
Less recoupment (3 450)
52 552
Cost 46000 x 2 ½ % x 4yrs 4 600 1
Garage 10 000 x 2 ½ % x 3yrs 750 1
Selling costs 6 600 (64 500) ½
Capital gains at 20% 12 050
Capital gains tax payable 2 410 5
marks
a) The three options she can defer payment capital gains tax
a) She use the whole sale proceeds to purchase or construct 2
Another property in the same year of assessment.
b) She can transfer the property between spouses 2
c) She can transfer the property to a company she has formed and being
the majority shareholder 2
6 marks
QUESTION 7
(a) Mrs Susan Rice the Director of Sweetridge Investments (Private) Limited have
approached you with various questions which need to be clarified from tax point of
view. State with reasons how you would treat the following:-
Mrs Susan Rice inherited the matrimonial house from her husband’s estate at a valuation
of $20 000 in 2009 tax year. The house is 30 kilometres away from the city centre. She
however decided to sell the property and buy a smaller residence near the city centre.
In 2010, she constructed a durawall around the property at a cost of $12 000 and sunk
a borehole at a cost of $6 000. She signed the sale agreement for the property in
September 2011 for $60 000.
Page 92 of 109
The costs of sale amounted to $12 000 and she used $25 000 of the sale proceeds to
purchase a flat in Belvedere and $10 000 was used to purchase a motor vehicle for her.
The property had municipal rates amounting to $5 000 on date of sale.
Required:-
Advise Mrs Susan Rice with calculations of any capital gains tax payable. (8 marks)
Solution 7
i) MRS. SUSAN RISE’S CAPITAL GAINS FOR 31/12/11.
$ Marks
Sale proceeds 60 000 ½
Less cost 20 000 ½
Durawall 12 000 ½
Borehole 6 000 ½
38 000 ½
Cost 20 000 x 2 ½ % x 3yrs 1 500 ½
Durawall 12 000 x 2 ½ % x 2yrs 600 ½
Borehole 6 000 x 2 ½ % x 2yrs 300 ½
Selling expenses 12 000 ½
Rates - (52 400) ½
Capital gains 7 600
Roller relief (25 000 x 7 600) (3167) (3 marks)
60 000
Capital gains at 20% 4 433

Capital gains tax payable 887
(8 marks)
QUESTION 8
Mino (Pvt) Ltd owns three farms in the Manicaland province and two farms in the
Masvingo province, and specializes in tea and coffee farming. The directors of Mino(Pvt)
Ltd made a decision at the annual general meeting held on 30 June 2015 to dispose of
the two farms in Masvingo province due to poor performance exacerbated by the poor
rainfall patterns in that region. The two farms and all related movable assets were sold
to a local consortium of emerging farmers through Mudehwe Estate Agents on 1 August
2015.
The following is an extract from Mino (Pvt) Ltd.’s fixed assets register relating to the
two farms as at 1 January 2015:
Asset type Date Cost ITV($) Selling
Constructed/purchased Price($) Price($)
Page 93 of 109
Land 2011 80 000 80 000 300 000
Tractors 2011 50 000 Nil 90 000
Tractors 2013 85 000 42 500 140 000
Irrigation 2010 30 000 Nil 69 300
Equipment
Farm 2011 65 000 Nil 100 000
improvements
Staff housing(15 2013 500 000 500 000 750 000
units)
Farmhouse 2014 `80 000 80 000 150 000
Other information:
Mino (Pvt) Ltd incurred the following expenses in connection with the sale of the two
farms:
Property valuation expenses $15 000
Advertisements $1 500
Legal fees (including transfer fees) $2 500
Estate agents’ fees 7.5% of selling price
Required:
(a) (i) Calculate the recoupment to be included in the gross income of Mino (Pvt) Ltd
for the year ended 31 December 2015 as a consequence of the asset disposals.
(ii) Calculate the capital gains withholding tax payable by Mino (Pvt) Ltd for the year
ended 31 December 2015.
(b) Calculate the capital gain tax liability for Mino (Pvt) Ltd for the year ended 31
December 2015.Assume that withholding tax was withheld at the stipulated rate.
QUESTION 9
(a)(i)Define a specified asset. (2 marks)
(ii)What is the due date for the submission of capital gains withholding tax? (1 mark)
(b)
Mr Periko purchased a Principal Private Residence (PPR) in Hatfield, Harare for
$300 000 on 1 February 2012 and immediately made the following improvements:
(a) Additional bedroom wing on 29 February 2014 for $50 000
(b) Staff cottage on 30 April 2014 for $20 000
(c) Driveway on 24 May 2014 for $25 000.
(d) Dura wall with electric fence on 31 May 2014 for $30 000
(e) Electric gate on 28 February 2015 for $15 000.
(f) Swimming pool for $40 000 on 30 August 2015.
Page 94 of 109
He sold the PPR for $1 000 000 on the 24th of December 2015 and purchased another
PPR in Borrowdale, Harare for $700 000.
Required:
(i) Calculate the capital gains tax payable by Mr Periko on the sale of the specified
assets.
(ii) Suppose Mr Periko elected for roll-over, calculate tax payable if any.
CHAPTER 6: VALUE ADDED TAX

QUESTION 1
Kupfuma Ishungu (Pvt) Ltd is a manufacturing company operating in Harare. The
company is a VAT registered operator under category C. The company is intending to
submit its VAT returns on 10 March for the month ended 28 February 2014.
The following transactions took place within the tax period: All prices exclude VAT,
unless otherwise stated.
Purchases $
Mercedes Benz E270 75 000
Raw materials 35 000
Manufacturing equipment 49 000
Plant and machinery 90 000
249 000
Sales
Sales of finished products 250 000
Disposal of furniture 60 000
310 000
Expenses
Salaries 10 000
Marketing expenditure 7 500
Accounting and audit fees 5 000
Security services 4 500
Manufacturing overheads 15 000
Entertainment provided to customers at new product launch 6 000
Staff canteen equipment 19 000
67 000
i. The company is providing fringe benefits to its employees such as car benefits,
cell phone and clothing allowances. The total value of these benefits to the
company for the month in question was $22 000.
Page 95 of 109
ii. Due to price increases the company has been forced to issue debit notes to some
of its customers worth $30 000 excluding VAT.
iii. The company also received debit notes from its suppliers for $15 500 including
VAT.
iv. The company also issued credit notes in respect of returned goods for $17 000,
including VAT.
v. A tax invoice worth $37 000 including VAT for the goods purchased in December
2012, has been just received and remained unclaimed.
vi. The company also purchased second hand equipment worth $8 000 including
VAT.
vii. All goods and services provided by and supplied to the company are charged VAT
at the standard rate.
Required:
Compute the company’s VAT liability for the period of assessment in question.
QUESTION 2
Aroma Biscuits (Pvt) Limited commenced trading on 2 January 2013, specialising in the
production and retailing of confectionary products. The company’s gross revenue and
operating expenses (All inclusive of VAT) for the year ended 31 December 2013 were as
follows:
$
Gross revenue 130 000
Raw materials purchased 52 000
Utility costs 3 800
Motor Vehicle expenses 2 009
Salaries and Wages 20 362
Consumables 467
Communication expenses 4 300
The company’s senior managers have had free use of the following Passenger Motor
Vehicles (PMV) during the year:
Nissan Almeria, engine capacity 1800cc
Mercedes Benz Sedan C230, engine capacity 2300cc
Nissan Hard Body, engine capacity 2500cc
Ford Ranger, engine capacity 3300cc
As the company has not yet registered for VAT, so it has not been charging VAT to its
customers. It has however been paying VAT on all of its expenses (inputs).
Page 96 of 109
Required
a) Explain the distinctive features of the VAT registration categories ranging from A to
D [4]
b) State, giving reasons, why Aroma must register for VAT and when it should have done
so. [2]
c) Calculate the potential VAT liability of Aroma for the year ended 31 December 2013,
stating any requirement the company need in order to be able to claim input tax.
[13]
d) State ZIMRA’s possible courses of action to ensure compliance with the applicable
statutes [1]
QUESTION 3
Mrs Mauro , a renowned architect entered into a lease agreement with Municipality of
Beitbridge to rent a piece of land close to the busy border post. The terms of the lease
agreement are such that Mrs Mauro is required to construct a commercial building for
not less than $100 000 within three months of signing the agreement.
The lease period is for 12 years commencing on 1 January 2013. The monthly rent is
$1000 and the municipality also charged a one-off lease premium of $20 000. The
construction of the commercial building was completed to specifications on 31 July
2013 at a total cost of $150 000.
Mrs Mauro took occupancy of the building on 1 September 2013. He opened a grocery
store on one wing of the commercial building and subdivided the other wing which she
then let out to tenants (commercial).
Mrs Mauro’s turnover (VAT exclusive) for the year ended 31 December 2012 is made up
of the following:
$ $
Grocery Store 92 300
Rent received 15 000
Grocery Store returns (8 000)
99 300
Purchases ledger (VAT inclusive as appropriate)

Grocery store-standard rated supplies 20 000
Grocery store-zero rated supplies 6 000
26 000
Overheads for the year (VAT inclusive as appropriate)
Lease premium 23 000
Rent 13 800
Communication expenses 7 500
Printing and Stationery 3 000
Staff costs 7 000
Repairs and maintenance 6 500
Page 97 of 109
Transport expenses 4 000
Depreciation 4 000
Marketing expenses 2 000 96 800
Net position 2 500
Required
a) Calculate the allowable deductions that can be claimed by Mrs Mauro in respect of
the lease agreement for the year ended 31 December 2013. [3]
b) Assuming that Mrs Mauro was VAT compliant, explain the due dates for the
submission of her VAT returns and VAT payments for the year ended 31 December 2013
if she was registered as follows:
(i)Under category C
(ii)Category A and B [2]
c) Calculate Mrs Mauro’s VAT payable for the year ended 31 December 2013 [15]
QUESTION 4
You are the financial manager of Mazhambe (Pvt) Ltd, a property company earning its
income from both commercial rentals (office blocks and factories) and residential
rentals (town houses). The company has a December year end. Your responsibilities
include the completion of its monthly VAT returns.
The accounting system operated by Mazhambe (Pvt) Ltd has provided the following
analysis of its income and expenditure for the period ending 31 December. All amounts
are inclusive of VAT, where applicable and the company uses the turnover basis of
apportionment where applicable.
Income USD ($)

Commercial rentals 450,000
Residential rentals 150,000
Interest levied on overdue rentals 7,410
Insurance Indemnity (note 1) 75,000
Expenditure
Purchase of new factory building to be let (paid cash) 250,000
Purchase of two residential flats to be let (paid cash) 120,000
Bank charges 250
Audit fees 15,000
Salaries and wages 85,000
Isuzu KB250 (singe cab) (note 2) 35,000
Isuzu KB250 (double cab)(note 2) 40,000
Depreciation (note 2) 1,500
Maintenance (note 3) 15,000
Insurance premiums (note 4) 20,000
Page 98 of 109
Interest accrue on mortgage bonds 1,500
Office equipment rentals (note 5) 8,000
Employees’ expenses (note 6) 1,000
Petrol 10,000
Travelling Expenses (note 7) 1,800
Notes:
(1) The company’s vehicles, a Mazda B1800 (single cab) and a Toyota Camry (saloon)
were involved in separate accidents and the company received compensation from its
insurers. It received $45,000 for the MazdaB1800 and $30,000 for the Toyota Camry as
indemnity.
(2) The vehicles were purchased from proceeds from the insurers. Depreciation was in
respect of the new vehicles.
(3) Maintenance costs were for all the buildings owned and operated by the company
and included costs for paint, brushes, and other hardware items purchased to effect
repairs on the buildings.
(4) Insurance premiums in terms of an all comprehensive business insurance policy were
incurred in respect of all the assets of the company.
(5) Office equipment rentals were incurred on the following items:

Facsimile Machine $3,000
Printer $2,000
Coffee machine $3,000
Total $8,000
(6) Employees’ expenses of $1,000 were for teas and lunches provided to employees by
the company.
(7) Travelling expenses were made up as follows: $800 for accommodation and meals
for an employee who spend the night in Bulawayo on company business and $1,000 for
an air ticket for the Managing Director who went to South Africa on a business trip.
(8) Five employees of the commercial letting division use company vehicles for both
business and private. Engine capacities for the vehicles are all below 1500cc.
(9) Commercial rental business improved during the year prompting the company to
convert on of it block of flats into office blocks. 80% of the block of flats was let out as
offices in December. The company purchased the block of flats for $80,000. The market
price of the flats at the time it was let out as offices was $75,000.
Required
Calculate VAT payable/refundable for Mazhambe (Pvt) Ltd for the tax period ending 31
December assuming all the necessary documentation has been obtained by the
company. Should no VAT be raised or claimed, provide brief reasons. (25 Marks)
Solution 6
Page 99 of 109
You are the financial manager of ICAZ (Pvt) Ltd, a property company earning its income
from both commercial rentals (office blocks and factories) and residential rentals (town
houses). The company has a December year end. Your responsibilities include the
completion of its monthly VAT returns.
Output Tax
Commercial Rentals (450,000 * 15/115) 58,695.65 (1 mark)
Residential rentals (exempt) (0.5 marks)
Interest Levied on overdue rentals (exempt) (0.5 marks)
Insurance Indemnity (note 1) 4,402.17 (1 mark)
Motoring benefit (note 2) 97.83 (1 mark)
Total Output Tax 63,097.83 (0.5 marks)
Input Tax
New factory building (250,000*15/115) (note 3) 32,608.70 (1 mark)
Two residential flats (exempt) (1 mark)
Bank charges (exempt financial services) (0.5 marks)
Audit fees 15,000 * 15/115*75% (note 4) 1,467.39 (1 mark)
Salaries and Wages (exempt- not a trade as defined) (0.5 marks)
Isuzu KB250 single cab (note 5) 3,423.91 (1 mark)
Isuzu KB250 double cab (prohibited deduction) (1 mark)
Depreciation (prohibited deduction) (0.5 marks)
Maintenance (note 6) 1,467.39 (1 mark)
Insurance premiums (exempt) (1 mark)
Interest on mortgages (exempt) (0.5 marks)
Office equipment rentals (note 7) 489.13 (1 mark)
Employee expenses (prohibited - entertainment) (1 mark)
Petrol (exempt) (0.5 marks)
Travelling expenses (note 8) 78.26 (1 mark)
Change of use from nontaxable to part taxable (note 9) 7,826.09 (1 mark)
Total Input Tax 47,360.87 (0.5 marks)
Page 100 of 109

Calculation of VAT payable/refundable
Output Tax 63,097.83 (0.5 marks) less Input Tax 47,360.87 (0.5 marks) VAT Payable
15,736.96 (0.5 marks)
Notes
1. Turnover basis method of apportionment should be used. The ration will thus be:
Taxable 450000/600000 = 75% and non-taxable 150000/600000 = 25%. (0.5 marks)
2. The insurance indemnity is a deemed supply. As ICAZ (pvt) ltd was entitled to an
input tax credit for the Mazda B1800 when it was initially purchased. As only 75% of the
input tax was claimed, the output tax is also apportioned to the extent of 75%. (0.5
marks)
3. Deemed benefit for a vehicle less than 1500cc is 150. The total deemed benefit will
thus be 5 * 150 = 750 and VAT will thus be 750 * 15/115 = $97.83. (0.5 marks)
4. New factoring building is used 100% for trade. There is therefore no need to apportion
the input tax. (0.5 marks)
5. Audit fees were incurred for producing both taxable (commercial letting) and exempt
(residential letting) hence input tax has to be apportioned. (0.5 marks)
6. Isuzu KB single cab is used for both supplies hence input tax is apportioned as follows:
35,000 * 15/115 *75% = $3,423.91. (0.5 marks)
7. Maintenance costs were incurred on both buildings hence apportionment is done as
follows: 15,000 * 15/115 * 75% = $1,467.39 (0.5 marks)
8. Only input tax incurred on rentals of Facsmile $3,000 and Printer $2,000 will be
claimed. Rentals for Coffee Machine will not be considered for input tax deduction
because it is incurred for the purposes of entertainment which is a prohibited
deduction. The input tax will be apportioned as follows: 5,000 * 15/115 * 75% = $489.13.
(0.5 marks)
9. Only expenditure incurred on accommodation and meals in Bulawayo will be
considered for input tax claim. Ticket fees for the Managing Director's trip to South
Africa will not rank for input tax deduction as the service constitutes international
travel which is zero rated. Not VAT was thus incurred. The input tax will be apportioned
as follows: 800 * 15/115 * 75% = $78.26 (0.5 marks)
10. An adjustment for input tax needs to be done as there is change of use from none
taxable supplies to taxable supplies. The adjustment will be made as follows: 75, 000
(lesser of cost or open market value) * 15/115 *80% = $7,826.09 (0.5 marks)
(Total: 25 Marks)
Page 101 of 109

QUESTION 5
Toi Toi limited is registered for Value Added Tax (VAT) and has business interests in
hotels and manufacturing. The following information was extracted from records for
the month of May 2015:
Income
$
Cash sales(Note 2 & 3) 112,000
Credit sales(Note 4) 120,000
Expenditure
Purchases of raw material 21,000
Accounting fees 3,000
Legal fees 2,500
Petrol and diesel 1,600
Municipal rates 200
Subscriptions 2,620
Cell phones 1,500
Motor vehicles 20,000
Entertainment 600
Office rentals 788
Telephone 1,256
Notes:
(1) All amounts are inclusive of VAT
(2) Cash sales included the sale of a computer to the company’s director at book value
of $1,000.00 while the market price was $1,200.00. Input tax was claimed in full at the
time of purchase of the computer.
(3) Cash sales also included payments made by tourists in hotel bookings of $6,000.00.
(4) Credit sales included supplies of $56,000.00 made to non-registered operators.
(5)The company issued debit notes valued at $2,000.00 to a non-registered operator.
(6) Legal fees were in respect of an amount deposited with the company’s lawyers for
future services if need arises. The company does not hold a tax invoice for the payment.
(7) Subscriptions were as follows:
$
Page 102 of 109

 Medical aid 1,000
 Hotel association of Zimbabwe 500
 Mashonaland country club 620
(8) Entertainment is made up of the following items

 Meals bought from chicken inn for company employees who exceeded the
company’s monthly target for $300.
 The other $300 is in respect of expenditure incurred by the company’s sales
representative in hotel bills and food in Bulawayo on company’s business.
(9) The company purchased a Mazda B2500 double cab and Mazda B1800 single cab for
business use for $25,000 and $16,000 respectively.
(10) The five cell phones worth $1,500 were bought for the company’s employees for
use by sales representatives during business trips.
(11) 10 employees had use of company vehicles for both business and private use. The
engine capacity for all the vehicles ranged between 1,680cc and 1,900cc.
Required:
Calculate the VAT payable or refundable for the month of May 2015
SOLUTION 5
Adjustments
1 Value of computer sold to company Director should be $1200 (use OMV, connec
2 No adjustment necessary
3 No adjustment
4 Sales have been increased by the debit note hense adjustment to be done
5 Legal fees will not rank for input tax as the company does not have a valid tax
Only subscription to HAZ to be claimed as

6 input tax.
Page 103 of 109

Only expenditure on hotel bills by employee to be claimed. Note: only allowed
7 spends one
night or more away from
home.
8 Allow input tax claim on Mazda B1800 only ($16,000 * 3/23 = 2,086.96
Allow input tax on all

9 cellphones
Adjust for output tax on the benefit

10 (200*3/23)*10 260.87
Calculation of VAT
payable/refundable
Output
(112000 - 1000)
Cash Sales *3/23 14,478.26
Credit Sales (120000*3/23) 15,652.17
Computer sold to director (1200*3/23) 156.52
Debit notes (2000*3/23) 260.87
Motoring benefit (200*3/23)*10 260.87
Total Output tax 30,808.70
Input
Purchases of raw material (21000*3/23)

Accounting fees (3000*3/23)
HAZ
subscriptions (500*3/23)
Cell phones (1500*3/23)
Motor vehicles purchases (16000*3/23)
Motor vehicles expenses (20,000 *3/23)
Entertainment (300*3/23)
Office rentals (788*3/23)
Telephone (1256*3/23)
Total Input Tax 8,392.70
VAT payable 22,416.00
Page 104 of 109

Question 6
Agricultural Equipment (Pvt) Ltd is a Zimbabwe registered company that is in the
business of selling a wide range of agricultural equipment in Zimbabwe. It also exports
some equipment to Zambia and South Africa. The company is registered for VAT and
has a one month VAT tax period. It only makes taxable supplies of goods.
The company has just employed a new bookkeeper who is inexperienced. He is
currently completing the company’s VAT return for the tax period ended 30 June 2010
and seeks your assistance in respect of the following transactions which may be relevant
to the tax period.
1. The company imported a Toyota Hillux (single cab) 2500cc from Japan on 1 June
2010 for use by its sales manager. The vehicle is used for business and private purposes.
The vehicle’s landing cost in Zimbabwe was $36,800. During the month, the company
incurred the following expenses in respect of the vehicle:
• Insurance and licensing $1,140
• Fuel $875
• New bull bar and anti-roll bars $1,650
2. On 30 June a Nissan Double cab valued at $35,000 was sold to the finance executive
on his retirement for $15,000. His was 55 years of age at the time of his retirement.
The vehicle was previously used by him as his company car. The market value of the
vehicle was $40,000. The only expense that the company incurred on the vehicle during
the month was $500 for fuel.
3. On 15 June, equipment with a selling price of $55,000 was sold to a customer in
Zambia. The equipment was consigned and delivered to the customer’s warehouse in
Lusaka.
4. On 2 February 2010, equipment with a selling price of $95,000 had been sold to a
customer in South Africa. The equipment had been damaged while being delivered to
the customer and after a protracted dispute; the company has decided to write off 50%
of the cost as a dad debt in the current tax period. The customer settled the other 50%
in the current tax period.
5. During the tax period, the following entertainment, subsistence and related expenses
were incurred:
• Staff teas and lunches $400
• Golf Club subscriptions for the managing director $1,210
Page 105 of 109

• Hotel costs incurred by the managing director while out of town on business $750
• Subsistence allowance to 2 sales men who went out of town on business $300
6. An advance payment of $22,800 was received from a customer on 25 June 2010 in
respect of a tax invoice which was only issued on 8 July 2010 (the date the goods were
delivered).
7. An analysis of the bank statements for the month of June reflect the following:
• Bank charges $200
• Interest on bank overdraft $1500
8. An analysis of the amounts received from debtors reflects the following:
• Invoices dated and issued prior to 1 June 2010 $35,300
• Invoices dated June 2010 but paid in July 2010 $85,400
9. On 22 March 2010, a debtor overpaid his account by $5,500. Numerous attempts to
contact the debtor so that a refund could be made have failed. The excess amount has
now been credited to sundry income.
10. Goods purchased from a creditor amounting to $3,800 on 1 May 2009 remain unpaid.
The amount has also been transferred to sundry income.
YOU ARE REQUIRED to advise the bookkeeper how each of the above transactions must
be treated for VAT purposes and calculate the VAT (where applicable) for the period
ended 30 June 2010. All amounts (where appropriate) include VAT. [25 marks]
Solution 6
2. The company did not claim input tax on the purchase of the Nissan Double cab hence
no output tax will be accounted for on the sale of the vehicle and there is no VAT on
fuel hence no input tax claim. (1 mark)
The finance executive was 55 years old hence no taxable benefit arises on the sale of
the vehicle to him by the company. (1 mark)
3. The equipment was exported to Zambia and was charged VAT at 0% hence no output
tax. (1 mark)
4. Not input tax is claimable on the 50% bad debt written off as the original debt was
zero rated (exported). (1 mark).
The 50% proceeds from a debtor have no VAT consequences as the output tax (0% in
this case) would have been accounted for in a prior period. (1 mark)
Page 106 of 109

5. Input tax deduction is denied on entertainment as defined. Thus input tax on staff
teas and lunches is not claimable. (1 mark)
Club subscriptions are not allowed as an input tax deduction (1 mark).
Payment by the company for club subscriptions on behalf of the managing director could
be a taxable benefit in the hands of the managing director unless be can be proved that
his membership to the club is for the furtherance of the employer's business (1 mark).
Hotel costs for an out of town visit on the employer's business are allowed as an input
tax deduction. The input tax will thus be $750 * 15/115 = $97.82 (1 mark).
The subsistence allowance has no VAT implications and is also not a taxable fringe
benefit (1 mark).
6. The company is required to account for output as in the current tax period. The time
of supply is the earlier of any consideration being received for the supply and the date
the invoice is issued (1 mark).
The output tax will thus be 22,800 * 15/115 = $2,973.91 (1 mark).
7. There is no VAT on bank charges as they are charged by an entity offering financial
services which are exempt from VAT (1 mark).
There is no VAT on interest as it represents an exempt financial service (1 mark).
8. Receipts from debtors in respect of invoices relating to prior tax periods have no VAT
implications in the current tax period as the VAT would have been accounted for in the
previous tax period (1 mark).
Invoices issued in the current tax period will give rise to output tax of $85,400 * 15/115
= 11,139.13 (1 mark)
9. A deemed supply arises as a result of the overpayment which has not been refunded
(1 mark).
10. Therefore output tax of $5,500 * 15/115 = $717.39 must be accounted for (1 mark)
11. Originally input tax of $3,800 * 15/115 = 495.65 was claimed (1 mark). As the
creditor has not been settled for more than 12 months, deemed output tax of $495.65
arises (1 mark)
QUESTION 7
(a) Outline the statutory duties of a registered VAT operator.
(b)
Page 107 of 109

Danhiko Ltd is a registered operator in category C with business operations in Zimbabwe
and Malawi. It has businesses in wholesale and retail sectors. Information indicated
below was extracted from their accounting records for December 2015.
Income $
Hardware 51,000
Grocery 38,000
Commission 20,000
Bank Loan 109,000
Expenditure
Purchases (standard rated) 13,000
Purchases (zero rated) 9,236
Bond paper
1,300
Telephone
2,000
Advertising
1,000
Pension
2,000
Petrol and diesel
6,000
Motor vehicle servicing
1,200
Subscriptions
1,300
Motor vehicle purchases
20,000
Office rentals
1,000
Water and electricity
800
Entertainment
500
Salaries and wages
16,000
Notes
(a) Standard rated supplies included supplies of $10,000 made to non-registered
operators and the rest were to registered operators.
(b) Goods worth $15, 000 broken down as: Grocery $5,000 and Hardware $10, 000
were transferred to the Malawi branch.
Page 108 of 109
(c) The company issued debit notes for $2,000 received credit notes for $5,000.
These were in respect of supplies made in the previous tax periods.
(d) Some company employees were allocated company vehicles for business and
private use as shown below:
Engine Capacity Number of employees

Up to 1,500cc 2
1,501cc to 2,000cc 3
(e) The company purchased a Mazda 626 and Mazda B2200 (single cab) for use by its
managers at a cost of $5,000 and $15,000 respectively. These were brand new
vehicles.
(f) The company received commission from selling other people’s goods.
(g) Entertainment is made up of the following items:
 Travel and subsistence $600

 Amusement and recreation $400
(h) The entertainment is for expenditure incurred by the General Manager on his
trips to the branches around Zimbabwe where he would spend at least 2 days per
branch.
(i) The company paid subscriptions as follows:
 Harare Golf Club $600

 Rotary Club $700
The given amounts are exclusive of tax unless otherwise stated.

Required:
Calculate the Value Added Tax (VAT) payable/refundable in the month of December
2015.
Page 109 of 109

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UNIVERSITY OF ZIMBABWE

WINTER SCHOOL 2018

Statutory and other deductions (paid by employee)

Other employment related information

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

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

Net profit 25 000

Less capital allowances:

Additional information provided by employer.

3. In February, Concorde Investments (Private) limited provided Miss Huriet Davies

(up to 24 000) at 25% 6 000

Additional information provided by the employer:-

Elton’s pension fund contributions to the company’s 6 575

PAYE deducted for the period 1 January to 31 December 17 200

 In September 2010 Elton exercised an option to acquire 200 shares in Wonderland

 In September 2010 Elton invested funds in bankers’ acceptances. Interest on

 Presentation marks: Arrangement and layout, clarity of explanation, logical

Segment of annual Rate of tax within Cumulative

Taxable Income from employment

Year ended 31 December 2010

Motoring benefit (9 x $150) 1,350 1

Purchase of vehicle [exempt s (8)(1) f para (x)] - 2

Share option (600-400) 200 2

Pension contributions (max) (5,400) 1

Balance 41,600 @ 35% 14,560 1

Disabled person (900) 1

3% Aids levy 506 1

PAYE deducted (17,200) 1

Tax payable on employment income 182

Rental income 9,600 1

Monthly levy (6,000) 1

Directors fees 500 2

Taxable income from trade/

WHT deducted (100) 1

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

SOLUTION GUIDE 6[30 marks]

c) Computation of tax liability for the year ended 31 December 2013

The following additional information is given:

1 January to 30 June 2014

1 July 2014 to 31 December 2014

CHAPTER 2: TAXATION OF COMPANIES

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

Less: Administration expenses

General expenses 36 800

Bad debts 9 700

Interest paid 6 000

Salaries and wages 340 000

Provision of Director’s fees 200 000

Telephone, electricity and stationery 240 000 1 540 000

Trading profit $160 400

You are provided with the following additional information:

(a) $1 200 loan to a deceased employee

(c) $5 000 general provision for doubtful debts

(a) $1 900 to an AIDS orphanage

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

9. Director’s fees were fixed at an AGM in January 2014