CAC 4202 Farming Tutorial 2020

An A2 farmer, submits the following accounts in support of the year ended December 2019

Livestock Account

Opening stock $ $

2 bulls 3 500 100 sales 120 000

60 cows @ FSV $650 39000 20 deaths -----

20 oxen @ FSV $700 14000 Closing stock

30 heifers @ FSV 350 10 500 5 bulls 9 500

20 tollies@ FSV $300 6000 100 cows @ FSV $650 65 000

50 calves@FSV 250 12500 30 oxen @FSV 700 21 000

Purchases 20 heifers @FSV 350 7 000

3 bulls @ cost 6000 80 tollies@ FSV $300 24 000

60 cows 42 000 110 calves @ $250 27 500

120 births ------

Gross profit 115 500

465 274 000 465 274 000

Profit and Loss Account

Expenditure Income

Livestock expenses 49 600 Gross profit 115 500

Crop expenses 9 500 Maize sales 16 000

Fertilizer 5 250 VAT refund 2 700

Electricity bills 7 200 Profit on sale of vehicle 10 000

Interest 7 550 interest on loan 1 500

Depreciation 13 200 Vegetable sales 7 500

Sundry expenses 5 500 Dividends CABS Building Society 2 500

Insurance 3 200

General expenses 4 780

Net profit 45 720

155 700 155 700

Notes

1. His farm is situated in a designated “drought stricken area”, he sold 50 toliies due to drought
conditions for $40 500, it is established that this amount is included in the total sales of $
120 000. He makes an election in terms of paragraph 5 0f the 7 th schedule.
2. The VAT refund was in respect of output tax erroneously charged on sales of livestock.
3. Interest was on a loan of $60 000 used to build Mr. Tolle’s house in Burnside, the house was
completed during the year.
4. Interest received is in respect of a loan advanced to his neighbour to purchase cattle feed.
5. The passenger motor vehicle had been bought on the 23 rd of November 2017 for $35 000,
had been used 25% for private purposes by the taxpayer and was sold for $40 000 during the
year under review.
6. General expenses comprise of the following:
i) Legal fees- water rights application 3 400
ii) Packaging materials 900
iii) Refurbishment of dip tank 480
4 780
7. Insurance:
i) Life ( Mr. Tolle) 900
ii) Loss of profit 2 300
3 200
8. Assets added during the year:
i) Mr. Tolle’s house 95 000
ii) Land rover (second hand) used for business 45 000
iii) Farm school(used 80% by farm workers children) 125 000
9. Income tax values at end of previous year:
i) Plant and equipment 13 000
ii) Tractor 4 000
iii) Truck 6 000
10. Sundry expenses:
i) Aerial surveys 1 750
ii) Contour ridges 830
iii) Temporary roads 560
iv) Donations to local church 750
v) Loan raising fees (house) 1 500
vi) Fencing 110
5 500

Required

Compute his taxable income or loss for the year indicating the implications of drought sales on his
tax status. [ 30 marks]