SUSPENSIVE SALES AND

CREDIT SALES (SECT 17 & 18)

• Section 17 and section 18 of the Income Tax Act outline the basis of
taxation of amounts accruing under hire purchase and under credit sales.
• Under these agreements the full amount of sale is receivable in
instalments, which may stretch into years.
• for tax purposes the full sale price is deemed to accrue on the date of
signing of the sale agreement.
• This would mean that taxpayers are “taxable” on amounts not yet
received.
• However, sections 17 and 18 provide deductions which enable taxpayers
to be taxable on profit which relate to amounts which have become due
and payable in each tax year.
• A calculation of the profit relating to amounts which are not yet due is
made and deducted.
• A calculation of the profit relating to amounts
which are not yet due is made and deducted.
• This amount is added back to gross income in
the subsequent year when a fresh calculation
is then made.
• In the case of hire purchase sales (section 17)
the allowance is calculated in accordance with
the following formula
 Example:

• Alpha Electronics (Pvt) Ltd is a retail shop, selling televisions on credit to

approved customers. Each Television cost Alpha Electronics (Pvt) Ltd
$400. The 50 television sets were bought in 2011.
• You are given the following information for the year ended 31
December 2013.
• 20 sets sold in April 2011 at $600 each
• 16 sets sold in October 2011 at $600 each
• 14 sets sold in March 2012 at $600 each
• The terms of agreement require the customer to pay a deposit of 25%
on date of sale and the remainder payable over 20 months in equal
instalments commencing the month following that of sale.
• Required: Compute the taxpayer’s taxable income for each year during
the credit period
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Debtors schedule