CTA Level 1 Tax Module 2014 Practice Questions and Solutions

ADVANCED ZIMBABWE TAX
TAXATION MODULE 2014
ZCTA 2014
ADVANCED ZIMBABWE INCOME TAX

PRACTICE QUESTIONS/SOLUTIONS
CTA LEVEL 1
CTA LEVEL 1 -2014 PRACTICE QUESTIONS
CTA LEVEL 1
PRACTICE QUESTIONS
TUTORIAL 1
2
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QUESTION 1 (Individual Tax)
On 30th June 2013, Mr Jones who was 66 years old, retired from employment after 25 years of service with
pharmaceutical company.
His remuneration in respect of the period 1st January 2013 to 30th June 2013 was:
US$
Gross salary 18,000
Bonus 1,500
Gratuity 36,000
Housing allowance 1,200
Entertainment allowance 1,000
Cash in lieu of leave 9,000
Lump sum payment from pension fund (see note1) 40,000
Contribution to pension scheme (1,080)
Contribution to medical aid society (1,200)
P.A.Y.E deducted from P.AY.E remuneration (22,500)
During the period 1 January 2013 to 30th June 2013, Mr Jones was entitled to the free use of a company
vehicle a Toyota Vigo Twin cab with engine capacity of 3 000cc.
In addition, Mr Jones purchased the following assets from the company as part of his retirement package:
Original Date purchased Market Disposal

By company value at Value to
30th June 2013 Mr Jones
US$ US$ US$
Laptop 800 July 2010 500 200
Toyota Vigo twin cab 50,000 May 2010 30,000 20,000
Office furniture 1,000 June 2010 800 500
Notes:
1. Mr Jones whose total pension entitlement amounted to $150,000 opted to commute a

portion of the pension and received a lump sum of $60,000. His monthly pension from 1st
July 2013 is $350.
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2. Mr Jones also received the following income:
Company dividends received from Botswana 800
Less: tax withheld at source (120)
680
Bank interest received from Botswana 1,000
Less: tax withheld at source (150)

850
Rentals income from property in Zambia 50,000
Less: tax withheld at source (12,500)

37,500
Rental income from property in Zimbabwe 12,000
REQUIRED
1. Calculate the minimum tax payable by Mr Jones from employment income in respect
to the tax year ended 31 December 2013.
2. Calculate the minimum tax payable by Mr Jones from investment income in respect
of the tax year ended 31 December 2013.
[30 MARKS]
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Paul Paulsen was retrenched from employment on 31 August 2013 at the age of 56 years and 8 months.
Paul is married and has a son aged 30 years who is mentally disabled and lives permanently at a specific
institution for the mentally retarded in Australia.
After the retrenchment scheme was approved by the Ministry of Labour and Social Welfare, Paul and his wife
emigrated from Zimbabwe on 30 September 2013 to live in Australia.
The following income and expenditure relates to the tax year ended 31st December 2013:
Salary – January 2013 to August 2013 32,000

Bonus received August 2013 3,000
Severance pay on retrenchment 30,000
Gratuity paid on retrenchment 20,000
Medical aid contributions paid by the employer 1,300
Medical expenses paid by the employer 1,000
Medical aid contribution paid by Paul (500)
Board and accommodation paid for son at Australia institution (2,000)
Contribution to approved retirement annuity fund (5,800)
Contribution to National Social Security scheme (NSSA) ( 48)
PAYE deducted from remuneration (28,000)
Lump sum payment from retirement annuity fund pension
entitlement Note 2 80,000
Annuity from pension fund (October 2013 to December 2013) Note 2 900
Dividends – Zimbabwe listed companies
*From 1 January 2013 to September 2013 Note 3 1,800
*From 1 October 2013 to 31 December 2013 Note 3 540
Dividends – Australia listed companies :
*From 1 October 2013 to 31 December 2013 Note 850
Interest – Australia financial institutions:

*From 1 October 2013 to 31 December 2013 Note 5 1,170
Rental income – Zimbabwe property (1 October 2013 Note 6 8,000
to 31 December 2013)
Rental income – Australia property 13,000
(1 Jan 2013 to 31 December 2013)
NOTES
1. For the period January 2013 to August 2013, Paul had the use of a company car with engine capacity
of 2,500cc. The company vehicle was sold to him for $1,500.
The market value of the car was US$ 6,000 and the original cost to the company was US$15,000
2. In September 2013, Paul received a lump sum payment of $80,000 from retirement annuity fund
being a commutation of his pension. The gross pension entitlement prior to the commutation
amounted to $180,000. His annuity payment from 1 October 2013 were $300 per month.
5
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3. The Zimbabwean dividends were paid as follows :
Gross Tax Net

*From 1 January 2013 to 30 September 2013 2,000 200 1,800
*From 1 October 2013 to 31 December 2013 600 60 540
4. The Australia dividends were paid as follows :

Gross Tax Bank charges Net
*From 1 January 2013 to 30 September 2013 3,000 450 20 2,530

*From 1 October 2013 to 31 December 2013 1,000 150 - 850
5. The Australian bank interest was paid as follows:

Gross Tax Net
*From 1 January 2013 to 30 September 2013 2,500 250 2,250

*From 1 October 2013 to 31 December 2013 1,300 130 1,170
6. The Zimbabwean property was let at a rental of $1,000 per month with effect from 1 October 2011.
The tenant paid a deposit of $2,000 and an advance payment of $3, 000 in respect of rentals for the
period January 2013 to March 2013.
REQUIRED
Calculate the minimum tax payable by Paul Paulsen in Zimbabwe in respect of

the year ended 31st December 2013. Support your calculations with reasons. 35 MARKS
6
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During the year ended 31 December 2013, Joe Thomas (aged 50 years), was employed as a bank
executive at a local financial institution. His earnings and deductions in respect of that tax year
were as follows:-
Earnings $ $
Gross salary 80 000

Entertainment expenses (note 2) 4 800
Bonus 8 000
Profit share 12 000
Long service award 2 000
School fees for children 15 000
Housing allowance 6 000
Travelling expenses to South Africa (note 2) 2 500
Deductions
Retirement annuity fund contributions (5 350)
NSSA contributions (72)
Subscriptions-Institute of bankers (300)
Employees tax (PAYE) and aids levy deducted (42 000)
Non employment income earned

Company dividends received from Zambia: Gross 3 000
Zambia tax deducted (300)
Bank charges (10)
2 690
Gross bank interest received from Zambia 5 000
Zambian tax deducted (500)
Bank charges (20)
4 480
Rental income from inherited property in South Africa 6 000
Non executive directors fees from a Zimbabwean company 3 500
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Additional Information
1. For the period January 2013 to October 2013, Joe had the use of a company car with an engine
capacity of 2 500cc. The company vehicle was sold to him for $10 000 on 1 November 2013
and he duly paid for the vehicle on that date. The market value of the car on that date was
$15 000 and its original cost to the company was $50 000.
2. The entertainment allowance was paid as a cash allowance of $4 500 per month to Joe.
expenditure amounting to $1 200 was proved to have been incurred by Joe in entertainment
the company‟s customers.
3. Joe incurred the following medical shortfalls during the year ended 31 December 2013:
(i)$500 for purchasing his wife‟s spectacle;

(ii) $1,500 for the purchase of a wheelchair which was used by his son (aged 27 years),
who had been involved in a car accident.
(iii) $2,000 for medical fees paid to St Giles for the treatment of the son after the accident
4. On 1 January 2013, the company advanced an interest free loan of $12 000 to Joe for the
medical treatment of his mother in South Africa. Joe was only obliged to repay the loan effect
from 31 January 2013 at the rate of $500 per month. In addition to the loan, the company assisted
Joe with an amount of $2 500 to cover travelling expenses to be incurred by him and his
mother to travel to South Africa to seek medical attention.
REQUIRED:-
Calculate Joe Thomas’ minimum tax payable for the year ended 31 December 2013.
30 MARKS
8
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QUESTION 4
On 1st February 2013, Simba Fuels (Pvt) Limited entered into a 20 year lease agreement with
Most Properties (Pvt) Ltd to upgrade an old service station in Workington, Harare.
Some pertinent clauses of the lease agreement were:-
1. Simba Fuels (Pvt) Ltd was required to pay a premium of $50,000 on signing the lease
agreement on 1 February 2013.
2. Monthly rentals of $4,000 were payable in advance;
3. Simba Fuels (Pvt) Ltd was required to upgrade the old service station to a modern one at a cost
of $60,000
4. Upgrading commenced in March 2013 and was completed in October 2013 at a cost of $70,000.
The new service station was operational from 1 November 2013.
REQUIRED
1. Compute the maximum tax deductions available to Simba Fuels (Pvt) Ltd in respect
of the tax years ended 31st December 2013 and 31st December 2014.
2. Compute the taxable income of Most Properties (Pvt) Ltd in respect of the tax years
ended 31st December 2012 and 31st December 2013.
13 MARKS
9
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QUESTION 5
Mr John Martins trades as a sole trader under the name Martins Trading. He is a registered operator
and he makes 100% taxable supplies. He is in category A. As at 31 December 2012, Martins Trading
recorded gross sales of $55 000 which were below the current registration threshold of $60 000 per
annum. On 28 February 2013, he decided to apply to the Commissioner General to deregister Martin
Trading as a VAT registered operator. At the time of application for deregistration, Martin Trading
had the following assets and liabilities:
Assets Cost (including VAT) Open Market Value
$ $
Mazda T35 (note 1) 45 000 38 000
Toyota Corolla 1600 GLS (note 1) 20 000 21 000
Furniture (solely used for business purposes) 15 000 18 000
Computer equipment and accessories 2 500 2 000
Stove (note 2) 1 500 1 000
Tea urn (note 2) 1 350 1 200
Industrial building 230 000 245 000
Water rights to Gudo Dam (note 3) 12 200 10 500
Debtors (note 4) 70 000
Trading stock 30 000 45 000
Liabilities
Creditors (note 5) 40 000
Notes
(1) The Mazda T35 was purchased from MR T35, a registered operator and was used solely
to deliver goods to customers while the Toyota Corolla which was purchased from Motor
City Toyota, also a registered operator, was used to deliver mail and other small goods to
customers. It was also used by Mr Martins as his personal vehicle after hours and during
weekends and public holidays.
(2) The stove and the tea urn were used to prepare meals for staff. The meals are provided to
employees at subsidised prices.
(3) John Martins purchased water rights for Gudo Dam in January 2010 when he acquired a
farm through the government land redistribution program and he intended to set up a
market gardening project whose produce were to be sold in his shop. The dam was
purchased from another newly resettled farmer who was not registered for VAT.
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(4) The following is the debtors age analysis on the local credit sales of trading stock:
30 days 60 days 90 days Total
Amount ($) 20 000 27 000 23 000 70 000
(5) The following is the creditors age analysis:
60 days 390 days Total
Amount ($) 15 000 25 000 40 000
Required: Calculate the VAT consequences arising out of Mr John Martins‟ decision to deregister
Martins Trading as a VAT registered operator (15 marks).
11
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QUESTION 6
Miss Chenaimoyo enters into a lay- bye agreement with Express Clothing Shop, a registered
operator, on 3 March 2012 for the purchase of a wedding dress costing $850. She paid a deposit of
$100 and is required to make 3 further installments of $250 each on the first day of April, May and
June, respectively. Miss Chenaimoyo took delivery of the dress in June 2012.
In terms of the agreement, should Miss Chenaimoyo fail to make any further payments within 3
months after the deposit, the sale would be cancelled with Express Clothing Shop retaining the
deposit.
Required: What are the VAT implications of the transactions and what would be the time and value
of supply thereof. (5 marks)
12
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QUESTION 7
(i) John, a South African resident regularly brings his vehicle for service at a garage where
you are the accountant. During his frequent visits, his family accompanies him and uses the
time to do some shopping. The workshop manager asks for your opinion on whether to
charge John VAT at the standard rate (15%) or at zero percent. In his opinion the service
should be zero rated since John is a non-resident.
Required: Advise the workshop manager of the VAT status of the transaction citing
relevant provisions in the VAT Act. (4 marks)
(ii) Mr Munda owns a fleet of buses that ply the Harare/Mutare road and carries fare paying
passengers. He is facing viability problems and he decides to hire out some of his buses to
Mr Jones who intends to use the buses to ferry fare paying passengers along the
Harare/Bulawayo route. He will hire out the buses to Mr Jones without the services of
drivers for a fee of $5,000 per month per bus.
Required: Advise Mr Munda of the VAT considerations to make. (4 marks)
(iii) Your company which is in the transport business has been contracted by a local company
with branches in Bulawayo and Botswana to transport goods to its branches. On several
occasions, goods are transported to Botswana separately from goods to branches in
Bulawayo. However, at times deliveries to Bulawayo are done at the same time (using
same trucks) with those to Botswana.
Required: You have been asked to advise management of the VAT implications of this
arrangement. (4 marks)
(iv) A registered operator supplies accommodation to his employees. The employees are
obliged, in terms of their conditions of service to reside in the accommodation provided for
them. Part of the residence is also used in the making of taxable supplies.
Required: What are the VAT implications of this arrangement? (4 marks)
[Total marks 16]
13
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QUESTION 8
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 2013 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 2013 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 2013, 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
 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 2013 in respect of a
tax invoice which was only issued on 8 July 2013 (the date the goods were delivered).
14
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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 2013 $35,300
 Invoices dated June 2013 but paid in July 2013 $85,400
Required: Advise the bookkeeper how each of the above transactions must be treated for VAT
purposes and calculate the VAT (where applicable) for the period ended 30 June 2013. Indicate the
PAYE implications thereof (if any). All amounts (where appropriate) include VAT.
15
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QUESTION 9
You are the financial manager of ICAZ (Pvt) Ltd, a property company earning its income from both
commercial rentals (office blocks and factories) and residential rentals (town houses). The company
has a December year end. Your responsibilities include the completion of its monthly VAT returns.
The accounting system operated by ICAZ (Pvt) Ltd has provided the following analysis of its income
and expenditure for the period ending 31 December. All amounts are inclusive of VAT, where
applicable and the company uses the turnover basis of apportionment where applicable.
Income USD ($)

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
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.
16
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(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 $1,000 for an air ticket
for the Managing Director who went to South Africa on a business trip.
Required: Calculate VAT payable/refundable for ICAZ (Pvt) Ltd for the tax period ending 31
December assuming all the necessary documentation has been obtained by the company. Should no
VAT be raised or claimed, provide brief reasons.
17
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CTA LEVEL 1
SUGGESTED SOLUTIONS
TUTORIAL 1
18
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SUGGESTED SOLUTION 1
MR JONES
Tax computation
Tax year ended 31st December 2013
US$
Gross salary 18,000
Bonus 1,500
Gratuity 36,000
Lump sum payment from pension fund

40,000 60,000
Less: exempt portion (⅓ of $150,000) (50,000)
10,000
Motoring benefit (6 x $300) 1,800

Benefit on purchase of assets:
Laptop ( 500 - 200) 300

*Mazda
B2500 Twin cab benefit (NOTE 1) -
Office furniture (800 - 500) 300
Pension July 2013 to August 2013 (NOTE 2) -
79,100
Less:
Exempt bonus 1,000
Pension contributions 1,080
(2,080)
Taxable income from employment 77,020
19

Tax payable: 31st December 2013 US$
Up to: 60,000 15,600

Balance: 17,020 @35% 5,357
77,020 21,557
Elderly person‟s credit (900)
Less: Medical credit (50% of $1,200) (600)

20,057
Add: 3% aids levy 602

20,659
Less: P.A.Y.E. paid (22,500)

Tax refundable (1,841)
NOTE
1. No benefit accrues as the taxpayer is aged above 55 years (section 8(1)f para x
2. Taxpayer is aged above 55 years; pension not taxable para 6(h) of 3rd Schedule
Taxable income from trade/investment
Rental income from property in Zimbabwe 12,000
Less: Exemption [3rd Sched. Para 4 (v)] (3,000)

9,000
Rental income from Zambian property (not Zimbabwean source) -
Bank interest received from Botswana (not financial institution as defined in 1,000
3rd Schedule, para 10) 10,000
Company dividends received from Botswana 800
Taxable income from trade/investment 10,800
Tax on taxable income from trade/investment
Rental income from Zimbabwean property (9,000*25%) 2,250
Botswana bank interest (1,000 * 25%) 250

2,500
Add: 3% drought levy 75
2,575
Botswana company dividend (800 * 20%) 160
2,735
20

Less: Double tax relief
Zimbabwe Foreign Relief

Tax tax
Botswana company 160 120 120
Dividends
Botswana Interest 300 150 150
(270)
Tax on taxable income from investment 2,465
21

Paul Pausen
Tax computation: 31st December 2013
Taxable income from employment
US$ US$
Salary – January to August 2013 32,000

Less : Max pension RAF and NSSA (5,400)
26,600
Bonus received August 2013 3,000
Less: exempt portion (1,000)
2,000
Medical aid contributions paid by the company (exempt para 8 3rd sched) -
Medical expenses paid by the company(exempt para8 3rd sched) -
Monthly pension (exempt above 55years para 6(h) 3rd sched) -
Retrenchment package
Severance pay 30,000
Gratuity 20,000
50,000
Less :max exemption (1/3 0f $60,000) (20,000)
30,000
Motoring benefit ($300 x 8 months) 2,400
Benefit on purchase of care (para (x) of s 8 (1)(f)-above 55years -
Commutation of pension(see note) 80,000
Capital portion (1/3 of $180,000) (60,000)
20,000
Taxable Income from employment 90,200
Tax payable:
Up 90,000 26,100
Balance 200 @40% 80
95,200
26,180
Less : credits
Medical aid contributions (500)
Board for son (not minor child) -
(500)
50% thereof (250)
Elderly person‟s credit (900)
25,030
3% aids levy 751
25,781
Less : PAYE (28,000)
22

Taxable Income from trade/investment
Rental income from Zimbabwe property (received income) 8 000

Less: Exemption [3rd Sched. Para 4 (v)] (3 000)
5 000
Rental income from Australian property (not Zimbabwean source) -

Dividend from Zimbabwean company (exempt) -
Interest –Australia financial institutions:
*from 1 January 2013 to 30 September 2013[s12 (2)] 2 500
*from October 2013 to 31 December 2013(not ord resident in zim) -
2 500
[Exemption 3rd Scedule para not available] -
2 500
7 500
Dividend-Australian listed companies
*from 1 January 2013 to 30 September 2013[s12(2)] 3 000
*from October 2013 to 31 December 2013(not ord. resident in Zim) -

10,500

Rental income from Zimbabwean property @25% 1,250
Australian interest @25% 625
1,875
Add:3% drought levy 56
1,931
Australian company dividend( 3,000*20%) 600
2,531
Less : Double tax relief
Zimbabwe tax Foreign tax Relief

Australian dividends 600 450 450
Australian interest 625 250 250 700)
23

MR JOE THOMAS
Tax Computation
Tax year ended 31st December 2013
$ $
Gross salary 80,000
Entertainment allowance ($4,800-$1,200) 3,600
Bonus paid in November 2013 8,000
Profit share 12,000
Long service award 2,000
School fees for children 15,000
Traveling expenses to South Africa (note 3) -
Motoring benefit (10 x 300) 3,000
Benefit on purchase of car (15,000-10,000) 5,000
Traveling expenses for employee and dependant [exempt 3rd sched. Para8(1)] -
Loan benefit: treatment of mother (12,000 x 5,5%) 660
135,260
Less:
Exempt bonus (1,000)
Institute of Bankers (300)
Pension contribution (maximum) (5,400)
(6,700)
Taxable income from employment 128,560
Tax payable: 31 December 2013
Up to: 120,000 38,100
Balance 8,560 at 45% 3,852
128,560
Less:
Medical credit: 41,952
Spectacles (Spouse qualifies) 500
Wheelchair (child qualifies) 1,500
St Giles (not minor child: no credit) -
2,000
50% thereof (1,000)
40,952
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Add:
3% aids levy 1,229
42,181
Less:
PAYE paid (42,000)
Tax payable 181
Taxable income from trade/investment
Rental income from South African property (not Zimbabwean source) -
Bank interest from Zambia [gross s. 12(2)] 5,000
Non executive directors fees 3,500
8,500
Dividends from Zambia [gross s. 12 (2)] 3,000
Taxable income from trade/investment 11,500
Bank interest from Zambia (5,000 x 25%) 1,250
Non executive directors fees (3,500 x 25% 875
2,125
Add: 3% drought levy 64
2,189
Zambian company dividend (3,000 x 20%) 600
2,789
Less: Double tax relief
Zimbabwe Foreign
Tax tax Relief
Zambia dividends 1,288 500 500

Zambia dividends 600 300 300
(800)
25
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SIMBA FUELS (PVT) LTD (LESSEE)
Deductible available
31 December 2013
Premium 11/120 x 50,000 4,584

Rent 11 x 4,000 44,000
Lease improvements 2/120 x 60,000 1,000
Voluntary improvements (2,5% x 10,000) 250
49,834
31 December 2014
Premium12/120 x 50,000 5,000
Rent 12 x 4,000 48,000
Lease improvements (12/120 x 60,000 6,000
Voluntary improvements (2,5% x 10,000) 250
59,250
1. Premium is allowed over the period of the lease or 10 years whichever is shorter.
2. Lease improvements allowed from the date the improvements are brought into
use and are spread over the remaining period of the lease or 10 years whichever is lesser.
3. Voluntary excess expenditure ranks for 2,5% wear and tear allowance for
commercial buildings.
Most Properties (Pvt) Ltd

Taxable income
31 December 2013
Premium (taxed in full) 50,000

Rent (11 x 4,000) 44,000
Lease improvements (2/120 x 60,000) 1,000
95,000
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31 December 2014
Premium -
Rent 12 x 4,000 48,000
Lease improvements (12/120 x 60,000) 6,000
54,000
NOTE (lessor)
1. A premium is taxed in full in the year of accrual to the lessor
2. Lease improvements are taxed from the date the improvements are brought
into use and are spread over the remaining period of the lease or 10 years
whichever is lesser.
27

John Martin‟s decision to deregister entails that he accounts for VAT on all assets that on hand where input
tax was claimed on their purchase. Value of supply of the goods is the lesser of cost or open market value (1).
VAT will thus be calculated as follows:
Asset Value VAT Mark
Mazda T35 (business asset) 38 000 $4,956.52 1
Toyota Corolla (input tax denied on initial purchase
hence no VAT consequence) 1
Furniture 15 000 $652.17 1
Computer equipment (business assets) 2 000 $260, 87 1
Stove (input tax denied on initial purchase hence no
VAT consequence) 1
Tea urn (input tax denied on initial purchase hence no
VAT consequence) 1
Industrial building (business asset) 230 000 $30,000 1
Water rights (purchase from a non-registered operator
hence no VAT consequences) 1
Debtors (output tax declared in the tax period in which

an invoice or payment was made). However an adjustment
would have been made and input tax claimed if the
debts were written off as bad debts at the time of deregistration. 2
`
Trading stock 30 000 $3,913.04 1
Creditors: 370 days (output tax payable in terms of section 22(4)) 25000 $3,260.87 1
60 days (output tax is payable on the outstanding debt) 15 000 $1,956.52 1
Total VAT payable by John Martins $44,999.98 1
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Express is required to account for VAT on the dress purchased on lay bye. The value of such supply
will be the amount payable by Chenaimoyo which is $850 less VAT (1). Output tax will thus be 850
* 15/115 = $110, 87 (1). The time of supply will be the day Chenaimoyo takes delivery of the dress
which is June 2012 (1).
Had Chenaimoyo cancelled the agreement and Express Clothing retain the deposit, Express would
have been deemed to have sold the dress. (1) The value of supply in this case would have been the
amount retained (1/2) and the time of supply would have been the time the agreement is cancelled
and deposit retained (1/2).
29

Marks
(a) The service and any parts affixed to the vehicle will be charged with VAT at 15%. (1)
Provisions of section 10(1) of the will apply because the service is done on (1)
Movable property situate in Zimbabwe at the time the service is rendered. (1)
For zero rating to be applied, the goods must be delivered or consigned to a recipient(1)
In an export country. In this case the goods/service was received by John whilst he was in
Zimbabwe. (4)
(b) The supply of transport services to fare paying passengers is exempt from VAT in terms of
section 11(f) of the VAT Act. (1)
Mr. Munda will not be required to register for VAT in terms of section 23. (1)
However, the hiring out of buses is not exempt from VAT. Mr. Munda is making a supply to
Mr. Jones which is taxable. This supply is not related to his supply of transport services to fare
paying passengers. (1)
He will be required to account for VAT on the fees received from Mr. Jones for the hiring
Services and should apply to register for VAT as his supplies exceed the registration threshold
of $60,000.00. (1)
(4)
(c) Services rendered in connection with transportation of goods to the Botswana branch are zero
rated in terms of section 10(2)(a)(ii). (1.5)
Transportation services for goods to a branch in Zimbabwe will be taxed at 15% (1)
However, services rendered in connection with transportation of goods to Bulawayo

enroute to Botswana is zero rated in terms of section 10(2)(c) (1.5)
(4)
(d) The supply of accommodation to employees is exempt from VAT (section 11(c)(ii) (1)
However, the benefit constitutes gross income (section 8(1)(f) of the Income Tax Act) and is
therefore subject to PAYE. (0.5)
The registered operator is required to account for VAT on the part that is utilized to make
taxable supplies. (1)
He is entitled to claim input tax but only a portion attributable to making taxable supplies,
i.e. He is required to apportion the input tax if it is incurred for making both taxable and
exempt supplies. (1)
(4)
30

1. The vehicle was landed in Zimbabwe for $36,800. Since it is not a passenger motor vehicle,
the company can claim input tax of $4,800 (36800 * 15/115) (1 mark)
No VAT is claimable on insurance and fuel as these are exempt supplies (1 mark)
Input tax of $215.22 (1650 * 15/115) is claimable on the new bull bars and antiroll bars
(1 mark).
Since the vehicle is used by the sales manager for both business and private, there is a
deemed benefit of $300 per month which is taxable in the hands of the employee (1 mark)
The company is required to declare output tax of $39,13 (300 * 15/115) on the fringe benefit
in terms of section 17(3) 9 1 mark).
2. The company did not claim input tax on the initial purchase of the Nissan Double cab,
consequently, it cannot account for output tax on its sale. There is also no output tax to
declare on the fuel (1mark)
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 is
payable (1 mark)
4. No input tax is claimable on the 50% bad debt written off as the original debt was zero rated
(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).
5. Input tax deduction is prohibited on entertainment as defined. Thus input tax on staff teas and
lunches is not claimable (1 mark)
Input tax deduction is prohibited on Club subscriptions is prohibited (1 mark).
Payment by the company of club subscriptions on behalf of the MD could be a taxable

benefit in the hands of the MD unless it can be proved that his membership is for the
furtherance of the employer‟s business (1 mark).
Hotels costs for an out of town visit on the employer‟s business are allowable as an input tax
deduction. The input tax will thus be $97.82 (750 * 15/115) (1 mark).
There are no VAT implications on the subsistence allowance and no taxable fringe benefit
arises in the hands of the recipient (1 mark).
6. The company is required to account for output tax in the current 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).
31

The output tax will thus be $2,973.91 (22800 * 15/115).
7. There is no VAT on bank charges as they are charged by an entity offering financial services
which are exempt (1 mark).
8. Receipts from debtors in respect of invoices relating to prior tax periods have not VAT
consequences in the current tax period as VAT would have been accounted for in the relevant
tax periods.
Invoices issued in the current tax period will give rise to output tax of $11,139.13 (85400 *
15/115) (1 mark).
9. A deemed supply arise as a result of the overpayment which has not been refunded (1 mark).
Therefore, output tax of $717.39 (5500 * 15/115) must be accounted for (1 mark).
10. Originally input tax of $495.65 (3800 * 15/115) 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).
32

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 non taxable to part taxable (note 9) 7,826.09 (1 mark)
Total Input Tax 47,360.87 (0.5 marks)
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)
33

1. Turnover basis method of apportionment should be used. The ration will thus be:
Taxable 450000/600000 = 75% and nontaxable 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 Facmile $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. No 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% = $7,826.09 (0.5 marks)
(Total/25 Marks
34

CTA LEVEL 1
PRACTICE QUESTIONS
TUTORIAL 2
35

QUESTION 1
David and Samuel practise as Dental Surgeons in Harare. They submit the following profit and loss
account in support of income returns for the tax year ended 31 December 2013.
US$ US$
Insurance premiums: Fees accrued 398 500

- loss of profit 6 000 Bad debts recovered 8 400
- fire 3 600 Bank interest 7 500
- partnership joint life policy 3 800 Debenture interest 2 000
- life policies for benefit of : Dividends Delta Corp Ltd 900
Samuel 1 600
David 1 000 2 600
Medical aid contributions:
David 5 200
Samuel 3 200
Staff 11 000 19 400
Staff salaries 68 000
Annuity to widow of
deceased employee 21 000
Interest on capital : David 4 800
Samuel 4 400
Bad debts 9 700
Trade subscriptions 1 000
Legal expenses : debt collection 6 000
Depreciation 86 000
Net Profit :
David 60% 108 600
Samuel 40% 72 400
________
181 000
________ ________
417 300 417 300

________ ________
1. Partners drawings were Samuel US$8 000 and David US$9 000.
2. Bad debts recovered include an amount of US$6 000 on account of a loan previously written off as
bad and not allowed as a deduction for tax purposes.
3. Residents‟ tax on bank interest US$1,875 withheld. The debentures were in a farming company.
4. The gross dividend from Delta Corporation Ltd is US$1 000 from which US$100 resident
shareholders tax has been deducted at source.
36

5. Bad debts are made up as follows:

US$
Provisions for doubtful debts calculated at 5% of debtors 4 300

Fees unpaid 2 600
Loan to former manager now irrecoverable 2 800
______
9 700
______
6. (a) Fixed Assets in the hands of the partnership at the beginning of the year are as follows :
Date Original
Description of Asset Acquired Cost
$
______________________ _________ __________
Office Furniture and Equipment Jan 2004 15 000

Surgery Equipment Jan 2011 70 000
Truck (single cab) Jun 2009 6 000
(b) During the year the truck was traded in for a second-hand land cruiser. A trade in value of
US$4 000 was given on the truck and the cost of the land cruiser was US$50 000.
(c) A sterilizer (cost $400 purchased in January 2011) was scrapped during the year 2013, and
a new one purchased for $10 000.
(d) The partnership elects to claim SIA.
8. Samuel borrowed money to purchase his share in the partnership practice. Interest payable
during the year amounted to $12 000.
9. David and Samuel paid $30 000 and $55 000 respectively to approved retirement annuity funds.
10. Samuel travels extensively for the practice and provides his own transport. He rented a car for $9
000 a month for six (6) months from 1 January 2013 and on 1 July 2013 purchased a Mazda
sedan – vehicle car for US$30 000. His running expenses for six months to 31 December 2013
were US$100 000. It has been established that his non-business travel has at all times been 10%
of the total.
11. Samuel is unmarried but has a disabled child aged 5. In addition to his income from the
partnership, he had the following income :
US$
Dividends from companies registered in Zimbabwe 40 000
Interest on tax reserve certificates fully utilised in payment on tax 2 400
Rents from UK property 72 000
12. David is married with two children, and during the year his medical aid shortfalls were $6 000.
13. CALCULATE David and Samuel’s tax payable for the year
37

QUESTION 2
PARTNERSHIPS AND COMPANIES
Abby, Ben and Clarice have been trading in partnership as ABC Commodity Brokers for the past
ten years. On 1 July 2013 they decide to incorporate a company ABC Commodity Brokers (Pvt) Ltd
to take over the partnership business.
The following information relates to the trading activities of the partnership in respect of the
period 1 January 2013 to 30 June 2013.
Partnership agreement
(i) Profit was to be shared in the ratio of 1:2:3 for Abby, Ben and Clarice respectively.
(ii) Partners drawings were Abby $18,000, Ben $24,000 and Clarice $27,000.
(iii) The partnership would pay the partners medical aid contributions as well as their
personal life insurance policies.
Income statement
The income statement of the partnership in respect of the period 1 January 2013 to 30 June 2013
reflected a net profit of $30,000 after being credited and debited with the following items:
Credits:
Profit on sale of assets to ABC Commodity Brokers (Pvt) Ltd 12,000
Debits:
Medical aid: Staff 6,000

Partners: Abby 1,200
: Ben 1,500
: Clarice 1,800
4,500
10,500
Insurance premiums:
Loss of profits 3,000
Fire and theft 3,800
Life policies for benefit of:

Partners: Abby 300
: Ben 500
: Clarice 800
1,600
Company formation expenses 2,500

Depreciation 14,000
38

Partnership assets transferred to the company were as follows:-
Income
Tax
ASSET COST TAX YEAR Value Transfer
1 Jan
ACQUIRED 2013 Price
Computer equipment 8,000 December 2012 6,000 7,500
Furniture and Fittings 30,000 December 2012 22,500 25,000
Mazda 6 sedan vehicle 25,000 December 2009 nil 14,000
Nissan double cab 15,000 December 2011 5,000 12,000
Delivery trucks 60,000 December 2012 45,000 50,000
The income statement of ABC Commodity Brokers (Pvt) Ltd reflected a net profit of $69,000 after
charging the following:
Debits:
Depreciation 13,500
Medical aid: Staff 7,500
Partners: Abby 1,350
: Ben 1,780
: Clarice 2,100
5,230
12,730
Bad debts written off:
Date Reason
Debtor Debt Written Amount
Incurred Off
Mr Tahs January 2012 1,500

Mr Sonhe February 2013 1,890
Mr Tehene July 2013 2,900
6,290
39

The company incurred the following capital expenditure:
Furniture 7,000
New office block used with effect from December 2013 60,000
REQUIRED:
Calculate the minimum taxable income in respect of the year ended 31 December 2013 of:
(i) Abby, Ben. Clarice

(ii) ABC Commodity Brokers (Pvt) Ltd
30 MARKS
40

QUESTION 3
The income statement of G.Tours (Pvt) Ltd, a travel agency and trading company for the year ended
31st December 2013 was:
$ $
Gross profit 7,032,000
Profit on sale of motor vehicle 2,000
Interest received 14,500
Dividends: Econet Wireless .Zimbabwe Ltd 150,000
7,198,500
Less:
Agents commission 200,000
Annuity to retired employee 50,000
Bad debts 120,000
Bursary 25,000
Depreciation 240,000
Donations 60,000
General expenses 82,000
Interest payable 7,000
Rent 123,000
Salaries \ Wages 2,355,000

(3,262,000)
Net profit before tax 3,936,500
NOTES

The motor vehicle was sold in Zambia
Interest received
Bank interest 5,000
Overdue debtors 9,500
14,500
41

Agents Commission
This was paid to sub-agents in South Africa who arranged package tours for tourists to Zimbabwe
Annuity to retired employee
The annuity of $50,000 was paid voluntarily by the company to an employee who had retired at the age of 47
years on the grounds of ill health. The company does not contribute to any pension
scheme except the statutory social security N.S.S.A.
Bad debts
10% provision agreed with auditors as doubtful 95,000
Taken over from associated company 25,000

120,000
Bursary
The bursary of $25,000 is for a technical course closely related to the company's trade.
The course was undertaken by the controlling shareholder's son who is not employed by the
company.
Donations
Zimbabwe Tourism Council 40,000
Cancer Research Centre 20,000
60,000
General expenses
Company formation expenses written off 2,500
Cash stolen by wages clerk 3,500
Removal expenses of trading stock from 1 store to another 7,500

Paid to GAK LTD under an agreement whereby only goods
supplied by G Travel (Pvt) Ltd are to be sold to GAK LTD 68,500
82,000
Rent payable $123,000
Included in this amount is :

(i) A premium of $12,000 for a store leased from 1st October 2013. The lease is for an indefinite period.
(ii) $50,000 rent for a vacant stand
42

Interest payable
The interest related to a loan used to buy shares in OK Zimbabwe Ltd.
FIXED ASSETS
The motor vehicle sold at a profit of $2,000 was a Mazda 3 sedan which had been acquired in
December 2011 for $18 000 for a sales rep. It was sold in the current year for $20,000.
A replacement Mazda BT50 sedan was acquired for $30,000.
Other assets acquired during the year were:
Computers 12,000
Mercedes benz for director 120,000
REQUIRED
Calculate the minimum taxable income or loss of the company for the year ended
31st December 2013.
26 MARKS
43

QUESTION 4
Corporate Tax
Mukwa (Pvt) Limited is a Zimbabwean registered company which carries on business in Harare as a
manufacturer of a popular range of furniture.
The company‟s financial statements for the year ended 31st December 2013 showed a net profit before tax
figure of US $ 830,000 after the following debits and credits:
US$
Credits
Insurance proceeds received note 1 11,500
Profit on sale of machinery note 2 1,600
Debits
Bad debt note 3 2,100
Bursary note 4 5,000
Depreciation 15,000
Donations note 5 340,000
Doubtful debts note 6 37,000
Entertainment note 7 4,400
Export promotion expenses note 8 6,200
General expenses note 9 9,600
Notes
1. Insurance payment
In July 2013, a Toyota Corolla vehicle which had been purchased in the December 2011 tax
year for $15,000 was involved in an accident and written off. The company received $12,000
from an insurance company.
2. Profit on sale of asset

Machinery which had been purchased for $3,000 in May 2011 was sold for $4,000 in the
current year.
44

3. Bad debt
In March 2012, the company although not a money lender, advanced a loan of $2,000 to an
employee to partly finance his studies. The employee unfortunately died in June 2012
before repaying the loan and interest due. The company has therefore decided to write off the
amount of the loan as well as the interest amount of $100 as a bad debt.
4. Bursary
The bursary of $5,000 is for a technical course in south Africa closely related to the
company‟s furniture business.
The course was undertaken by the company driver‟s son who is employed by the company.
5. Donations
Cancer research institute 10,000

National bursary fund 150,000
Anti-retroviral drugs to Harare government hospital 180,000
340,000
6. Doubtful debts
This is made up of: Specific amount 13,000

General provision for doubtful debts 24,000
37,000
The specific amounts owed by government departments although disputed, have been
outstanding for over 90 days due to cash flow problems faced by the government.
7. Entertainment
Christmas party for customers 3,400

Staff Christmas party 1,000
4,400
8. Export promotion expenses
This was the cost incurred by the marketing manager on a trip to Zambia to explore new
markets.
9. General expenses
Theft of petty cash by employee 500
Registration of new trade mark 2,300
Replacement of factory car engine 4,000
Replacement of factory roof damaged by storm 2,800
9,600
45

10. Fixed assets
The income tax values (ITVs‟) of assets as at the 31st December 2012 were:
Cost ITV at 31 Dec 2012
Computers 5,000 2,500

Machinery 12,000 6,000
Toyota corolla 15,000 5,000
Special initial allowance (S.I.A) had been claimed on these assets in the year of purchase.
Disposals
Machinery which had been purchased for $3,000 in May 2011 was sold for $4,000 in the
current year.
REQUIRED
Calculate the minimum tax payable by Mukwa (Pvt) Ltd in respect of the year ended
31st December 2013.
(27 marks)
46

QUESTION 5
Blums (Pvt) Limited is a Zimbabwean registered company which carries on business in Harare as a
manufacturer of a popular range of furniture.
The company‟s financial statements for the year ended 31st December 2013 showed a net profit
before the tax figure of US $650, 00 after the following debits and credits:
US$
Credits
Insurance proceeds received note 1 18,000
Profit on sale of motor vehicle note 2 20,500
Profit on sale of factory note3 129,000
Debits
Bad debt note 4 5,250
Bursary note 5 5,000
Depreciation 15,000
Donations note 6 339,000
Doubtful debts note 7 35,000
Entertainment note 8 4,000
Export promotion expenses note 9 4,300
General expenses note 10 11,600
Interest payable note 11 80,000
Notes
In July 2013, machinery which had been purchased in June 2012 for $15,000 was damaged
by a power surge and written off. The company received $18,000 from an insurance
company. The proceeds were utilized to acquire replacement machinery for $16,000.
2. Profit on sale of motor vehicle

A Mazda 3 Sedan which was acquired for the sales manager in April 2009 for $30,000 was
written off in May 2013, after an accident.
Insurance proceeds of $28,000 were used to acquire a replacement Mazda 6 sedan for
$35,000.
3. Profit on sale of factory

In February 2011, Blums purchased a plot of land for US $50,000. It erected a factory on this
land at cost of US180 000. This building was brought into use on 1 October 2011.
As a result of continued unrest in the vicinity of this factory, Blums sold this land and
buildings in June 2013 for US $300,000 made up of US$60 000 for land and US$240,000 for
the buildings. Proceeds were used to purchase a factory in November 2013 for $260,000.
4. Bad debt
In July 2012, the company although not a money lender, advanced a loan of $5,000 to an
employee to partly finance his studies. The employee unfortunately died in June 2013 before
repaying the loan and interest due. The company therefore decided to write off the amount of
the loan as well as the interest amount of $250 as a bad debt.
47

5. Bursary
The bursary of $5,000 is for a technical course in South Africa closely related to the
company‟s furniture business. The course was undertaken by the company messenger‟s son
who is employed by the company.
6. Donations
Mayor‟s Cheer Fund 5,000
Independence Gala 6,000
Jairos Jiri Association 9,000
Midlands State University library 10,000
National Bursary Fund 140,000
Anti-retroviral drugs to Harare Government Hospital 180,000
339,000
7. Doubtful debts
This is made up of:
Specific amounts owed by government departments 23,000
35,000
The specific amounts owed by the government departments although not disputed, have been
outstanding for over 90 days due to cash flo3w problems faced by the government.
8. Entertainment
Christmas party for customers 2,500
Staff Christmas party 1,500
4,000
9. Export promotion expenses

This was the cost incurred by the marketing manager on a trip to Zambia to explore new
export.
10. General expenses

Theft of petty cash 2,000
Registration of new trademark 2,300
Replacement of car engine 5,000
Replacement of factory roof damaged by storm 2,300
11,600
11. Interest paid
The interest was paid to a local financial institution. The average debt to equity ratio of the
company during the year was 4:1
48

Fixed assets
The income tax values (ITVs‟) of assets as at 31st December 2012 was:
Cost ITV at 31 Dec 2012

Computers 5,000 2,500
Machinery 15,000 11,250
Mazda 3 30,000 -
Factory 180,000 90,000
Special initial allowance (SIA) had been claimed on these assets in the year of purchase.
Additions
Mazda 6 sedan 35,000
Machinery 16,000
REQUIRED
Calculate the minimum tax payable by Blums (Pvt) Limited in respect of the
year ended 31 December 2013; 38 MARKS
Calculate the minimum capital gains tax payable for the year ended 31 December 2013
assuming the company makes the available elections to minimise its tax liability.
12 MARKS
49

QUESTION 6
After qualifying as a Chartered Accountant, you started your own business as a practicing
accountant. In an attempt to increase your tax related work, you wrote a short article on taxation that
was published in a local newspaper. You concluded the article by inviting taxpayers to e-mail their
tax queries to you and undertook to answer each query by means of a brief reply email. In response
to your invitation, you received the following email from Mr John Muti:
From: John Muti [mailto: jmuti@gmail.com]

Sent: 19 April 2013 12:44pm
To: Accountant
Subject: Tax query
I own a small general dealer shop in Marondera. I trade in my name and am registered for VAT. My
trading hours are from seven in the morning to seven in the evening, seven days of the week. My
shop only supplies taxable supplies. During the month, I took the following items from my shop for
use by my son who had just been enrolled at the University of Zimbabwe.
 4 blankets
 2 pairs of sheets
 1 Carton of exercise books
 2 pairs of shoes
 3 shirts
 4 pairs of trousers
In addition to that, each Friday, I take the following groceries for use by the family:
 4 loaves of bread
 2 litres of fresh milk
 2kg margarine
Inclusive of VAT, these items cost me: Blankets $13 each, sheets $8 per pair, shoes $25 per pair,
exercise books $5 per carton, trousers $15 per pair, shirts $12 per shirt, bread $0.85 per loaf, milk $1,
10 per litre and margarine $6 per kg.
I would have sold the items to customers inclusive of VAT for $20 per blanket, $10 per pair of
sheets, $30 per pair of shoes, $8 per carton of exercise books, $20 per pair of trousers, $15 per shirt,
$1 per loaf of bread, $1, 15 per litre of fresh milk and $8 per kg of margarine.
My son did not manage to secure a boarding facility at the University. I found him accommodation
in Mabelreign, Harare, where he commutes to college every day during week days. To assist him
with transport, I gave him one of the Nissan pickups that were used as delivery vehicles at the shop.
During weekends when my son is not at college, the vehicle is used in the business for deliveries. I
estimate that the vehicle is now used 15% in the business. The Nissan pickup was purchased two
years ago from a registered operator and had been used wholly in the business since then. The cost of
the vehicle at the time of purchase was $16,500 and its current market price is $14,500.
Required: Write a memo, explaining to Mr. Muti, with supporting reasons and calculations, the
VAT consequences of his actions in respect of each item. (15 marks)
50

QUESTION 7
(a) Again (Pvt) Ltd, a registered operator acquired a business from Itsover (Pvt) Ltd, a registered
operator as a going concern for $320,000.00. Included in the consideration were the
following assets:
Equipment $20,000
Furniture $10,000
Computer Equipment $15,000
Nissan Navara Double Cab $40,000
Delivery Van $35,000
3 Passenger Motor Vehicles $50,000
Canteen Equipment $10,000
Coffee Machine $10,000
Office Building $130,000
All the assets had been purchased from registered operators and Itsover (Pvt) Ltd had claimed the
necessary input tax. Two months after conclusion of the transaction, Again (Pvt) Ltd converted 35%
of the business to make nontaxable supplies.
Required
(i) Discuss the VAT implications to Again (Pvt) Ltd of the transaction giving supporting
calculations where necessary. (13 marks)
(ii) Outline the conditions that qualify a sale of a business as a going concern for zero rating.
(4 marks)
(b) In February 2012 Peter, a registered operator bought some raw material for $10,500 (VAT
inclusive) from another registered operator on a 60 day account. Due to a slump in demand,
Peter failed to sell his products resulting in him managing to pay only 80% of his raw
material account. The balance remained outstanding up to 31 August 2013.
Required: Discuss (supported by calculations) whether there are any VAT consequences that arise
out of this account being outstanding for this long. In your answer, where relevant, also
address the timing of the VAT consequences. (3 marks)
51

QUESTION 8
Alleta Mombe is a qualified beauty therapist with three years‟ experience on international cruise ships. In
view of the scarcity of well established beauty salons in Zimbabwe, she decided to start her own business in
the country with effect from 1 January 2012. In November 2011, Alleta had registered a company, Allmombe
(Pvt) Ltd and she started operations on 1 January 2012 in rented premises in Eastlea suburb, Harare. In respect
of the period ending 31 July 2012, her gross revenue from the salon amounted to $85 000.
Six months prior to commencement of business, her cousin, Tendai who assisted her to set up the business
incurred the following expenses on her behalf.
Legal fees, re: registration of the company $150

Purchase of consumable materials for use in the business $15 000
Purchase of computer equipment and software $3 000
Purchase of furniture, fittings and beauty equipment $30 000
All purchases were made from VAT registered operators and were supported by tax invoices. She reimbursed
her cousin all the expenses he incurred on her behalf.
Requirements: Explain with reasons whether or not the company should be registered for Value
Added Tax purposes. Your answer should include an outline of any potential remedies that the
Zimbabwe Revenue Authority could invoke against the company and should set out the effect on the
recovery of input tax caused by the failure to register. Your answer should be supported by
calculations. (12 marks)
52

CTA LEVEL 1
SUGGESTED SOLUTIONS
TUTORIAL 2
53

Partnership David and Samuel
$
Profit per accounts 181 000
Add : depreciation 86 000

bad debts : general provision 4 300
: loan 2 800
annuity excess (S 15 (2) of (c) (21,000-200) 20 800
joint life insurance (capital) 3 800
recoupment 3 800 121 500
302 500
Less : bad debt recovered 6 000
Bank interest 7 500
SIA 5 000
Wear and tear 17 400
(35 900)
266 600
David 60% 159 960

Samuel 40% 106 640
266 600
Capital Allowances
Cost Wear
ITV Add and (Scrap) ITV
Asset Cost 31/12/12 (Disp) tear SIA Recoup 31/12/13
US$ US$ US$ US$ US$ US$ US$
______ ____ _______ _______ _______ _____ ______ _______
Office Furniture
& Equipment
2004 additions NIL NIL - - - - NIL
Surgery
Equipment
2011 additions 70 000 35 000 (400) (17 400) (1) - (200) (1) 17 400
2013 additions 10 000 - 2 500 - 7 500
Motor
Vehicles
2010 additions NIL NIL - - - 4 000 (2) NIL

(3)
2013 additions 50 000 2 500 7 500
_______________________________________________________________
TOTAL 70 000 35 000 89 600 (17 400) 5 000 (3 800) 32 400

_______________________________________________________________
54

1. Sterilizer scrapped US$

Cost of asset scrapped 400
ITV asset scrapped (200)
Proceeds nil
Scrapping allowance (200)
Equipment: Wear & Tear Calc:

2011 additions 70 000
Less : scrapped (400)
______
Cost of assets on hand 69 600
ITV 34 800
Therefore accelerated
wear and tear @ 25% (17 400)
ITV at 31/12/2013 17 400

______
2. Truck trade-in
ITV -
Proceeds 4 000
______
Recoup 4 000
______
3. Land cruisers are specifically included in the definition of “passenger motor vehicle”, and are therefore
Subject to the $10,000 cost limit.
55

Individual Computations
David Samuel
60% 40%
Share of taxable income 159 960 106 640
Add : life assurance policies 1 600 1 000

medical aid society contribution 5 200 3 200
interest on capital 4 800 4 400
________ ________
171 560 115 240
Less : interest on capital account (12 000)

RAF contribution limited to $3 600 (5 400) (5 400)
car rental 90% of $5 400 (4 860)
SIA on $30 000 restricted to
$10 000 at 25% (2 500)
Running costs 90% of $10 000
________ (9 000)
Taxable Income 166 160 81 480

________ ________
Tax thereon at 25% 41 540 20 370
Less : Credits
Disabled child (900)
Medical shortfall 50% x 6 000 (3 000)
_______ _______
Tax Chargeable 41 540 16 470

Add 3% Aids Levy 1 246 494
_______ _______
Tax Payable 42 786 16 964
_______ _______
56

SUGGETED SOLUTION 2
Abby, Ben and Clarice Partnership
Computation of taxable income for the period to 30 June 2013
+$ -$
Profit per accounts 30,000
Profit on sale of assets to the company (Capital) 12,000
Depreciation 14,000
Medical aid -
Loss of profits -
Fire and theft -
Life policies for partners benefit: -
Company formation expenses 2,500

Recoupment
Computers (7,500 -6,000) 1,500
Furniture and fittings (25,000 – 22,500) 2,500
Mazda 6 sedan[10/25 x14,000 – 0] 5,600
Nissan Double Cab [10/15 x 12 000 – 5000] 3,000
Delivery truck (50,000 – 45,000): 5,000
64,100 12,000
(12,000)
Partnership taxable income 52,100
Shared as follows:
Abby 1/6 8,683
Ben 2/6 17,367
Carice 3/6 26,050
52,100
57

Computation of taxable income for the partners
Year ended 31 December 2013
ABBY BEN CLARICE
Share of profits 8,683 17,367 26,050
Medical aid 1,200 1,500 1,800
Life policies 300 500 800
Drawings - - -
Taxable income 10,183 19,367 28,650
58

ABC Commodity Brokers (Pvt) Ltd
Computation of taxable income
Year ended 31 December 2013
+$ -$
Depreciation 7,500
Medical aid: Partners and staff -
Bad debts proven to be bad
Debt incurred January 2013 (capital) 1,500

Debt incurred Feb 2013 (capital) 1,890
Debt incurred July 2013 -
Capital allowances:
Furniture and fittings (25% of [25,000 + 7,000) 8,000
Computers [25% of 7,500] 1,875
Delivery truck [25% of 50,000] 12,500
Mazda 6 sedan vehicle [25% of 10,000] 2,500
Nissan twincab [25% of 10 000] 2,500
New office block (2,5% x 60,000) 875
79,890 28,250
(28,250)
Minimum taxable income 51,640
59

GTOURS
TAX COMPUTATION
+ -
$ $
Net profit per accounts 3,936,500
Exempt bank interest 5,000
Exempt Zimbabwe company dividend 150,000
Annuity [S 15 (2) q ] (50,000 - 500) 49,500
Bad debts[S 15(2) g] :not proven to be bad) 95,000
: capital 25,000
Bursary [S 15 (2) p ] 25,000
Donations : ZTC: allow 15 (2) (a) -
: Cancer Research: not for trade 20,000
Depreciation : capital 240,000
General expenses: -
Company formation :capital 2,500
Cash stolen by wages clerk: S 15 (2) allowance -
Removal expenses : S 15 (2) allowance -
Paid to GAK LTD :S 16 (1) j restraint of trade 68,500
Interest :S 16 (1) f 7,000
Rent premium : S. 15(2)(d) proviso iii ' :3/120 x 12,000 12,000 300
:vacant stand :capital 50,000
Capital allowances 8,000
Recoupment 5,000
4,536,000 165,300
(165,300)
Taxable income 4,370,700
60

Tax at 25% 1,092,675
3% aids levy 32,780
Minimum tax payable 1,125,455
Capital allowances
Mazda BT50 :
Actual cost 30,000
Deemed cost 10,000
25% S.I.A. (2,500) 2,500

I.T.V.31.12.2013 7,500
Computers:
Cost 12,000
25% S.I.A. (3,000) 3,000

I.T.V.31.12.2013 9,000
Mercedes Benz
Actual cost 120,000
Deemed cost 10,000
25% S.I.A. (2,500) 2,500

I.T.V.31.12.2013 7,500
8,000
Recoupment
Nissan sunny (cost $12 million) 18,000
Deemed cost December 2009 10,000
Actual selling price 20,000
Deemed selling price 11,111
I.T.V. 31.12.2012 (5,000)

Recoupment 5,000
Deemed selling price = Deemed cost × Proceeds

Actual cost
61

SUGGESTED
SOLUTION 4
Mukwa (Pvt) Ltd
Tax computation
Year ended 31st December 2013
Usd Usd
+ -
Net profit before
tax 830,000
Insurance proceeds received (capital) 11,500
Profit on sale of machinery (capital) 1,600

Bursary { allow s (15(2)p - not connected person} -
Depreciation (capital) 15,000
Bad debt - capital portion 2,000

- interest portion included in taxable
income -
Donations:
Cancer Research institute (not for trade ) 10,000

National Bursary Fund [ s(15) 2 (r)] -
Anti -retroviral drugs to Govt Hospital [ max $100,000 s15
(2)(r1)] 80,000
Doubtful debts -

Entertainment:
Christmas party for customers
(s16(1)m) 3,400
Staff Christmas party -
Export promotion expenses [double deduction s 15(2) gg } 6,200

General expenses
Theft of petty cash by employee -

Replacement of factory car engine( repair ) -
Replacement of factory roof damaged by storm (repair) -
62

Recoupment 4,500
990,400 16,600
(16,600)
Taxable income 973,800
Tax at 25.75% 250,754
Capital Allowances
Computers
ITV 31 December 2012 2,500
25% Wear & tear (1,500) 1,250
ITV at 31 December 2013 1,250
Machinery
Less ITV of sales (1,500)
4,500
25% wear & tear (2,250) 2,250

CAPITAL ALLOWANCES
Computers

25% wear & tear (1,250) 1,250
Machinery
Less ITV of sales (1,500)
4,500
25% wear & tear (2,250) 2,250

3,500
Recoupment
3,500
63

Recoupment
Machinery
Selling price (restricted) 3,000
3,500
Recoupment
Toyota Corolla
Deemed selling price 10/15 x 12,000 8,000
Less ITV at 31 December 2012 (5,000) 3,000
Machinery
Selling Price (restricted) (3,000)
1,500
Total Recoupment 4,500
64

Blums (Pvt) Ltd
Tax
computation
Usd Usd
+ -
Net profit before tax 650,000
Insurance proceeds received (capital) 18,000
Profit on sale of machinery (capital) 20,500
Depreciation (capital) 15,000
Bad debt - capital portion 5,000
- interest portion included in taxable income -
Bursary { allow s (15(2)p - not connected person} -

Donations:
Mayor's Cheer Fund 5,000
Independence Gala 6,000

Jairos Jiri Association -
Midlands State University library 10,000

National Bursary Fund [ s(15) 2 (r)] -
Anti -retroviral drugs to Govt Hospital [ max $100,000s 15
(2)(r1)] 80,000
Doubtful debts -

Entertainment:
Christmas party for customers (s 16(1)m) 2,500

Staff Christmas party -
Export promotion expenses [double deduction s 15(2) gg } 4,300

General expenses
65

Theft of petty cash by employee -
Replacement of factory car engine( repair ) -
Replacement of factory roof damaged by storm (repair) -
Interest paid 80,000
Allowable (3/4) (60,000)

20,000
Capital
allowances 20,750
Recoupment 90,417
921,217 192,550
(192,550)
Tax at 25.75% 187,632
66

Blums (Pvt) Ltd

Capital allowances
USD USD
Computers
ITV at 1 January 2013 2,500
25% wear and tear (1,250) 1,250
Mazda 6
Cost 35,000
Restricted 10,000
25% SIA (2,500) 2,500
Machinery
Cost 16,000
25% SIA (4,000) 4,000
Factory
2 ½ WHT on $260,000 13,000
20,750
Machinery
ITV at 31 December 2012 (11,250)
Proceeds (restricted) 15,000
Potential recoupment 3,750
Proceeds used to acquire replacement machinery 16,000

Proceeds not used to acquire replacement machinery
67

2,000
Recoupment per S 8(1) j proviso (i) [2,000/18,000 x 3,750] 417 417
Mazda 3
ITV at 31 December 2012 -
Deemed selling price 9,333
Potential recoupment (restricted) 9,333
However, there is no recoupment that arises because insurance proceeds ($28,000)

were utilised to acquire an asset of a like nature for $35,000.
Deemed cost x proceeds 10,000 x 28,000 9,333

30,000
Factory
ITV at 31 December 2012 (90,000)
Proceeds (restricted) 180,000
Recoupment 90,000
90,417
68

Marks
E-mail query : Mr Muti
From : C Accountant [mailto: caccountant@mweb.co.zw]

Sent : 20 April 2013 04:53 PM
To : John Muti
Subject: Tax query
Mr. Muti
When a registered operator helps himself to his trading stock (i.e. Applied goods for
purposes other than the making of taxable supplies), a section 17(1) „adjustment‟ (1)
arises. He is then deemed to have supplied the trading stock by way of a taxable
supply by himself in the course of his trade. It is deemed to be supplied for a (1)
consideration in money equal to their open market value (section 9(7)).
Output Tax will thus be accounted for as follows:

4 blankets at $20 each = 4 * 20 *15/115 = $10,43 (1)
2 pairs of sheets at $10 each = 2*10*15/115 = $2.61 (1)
1 carton of exercise books at $8 each 8 * 15/115 $1.04 (1)
2 pairs of shoes at $30 each 2 * 30 *15/115 $7.83 (1)
3 shirts at $15 each 3 * 15 *15/115 $5.87 (1)
4 pairs trousers at $20 each 4 * 20 *15/115 $10.43 (1)
Bread, milk and margarine are zero-rated supplies, hence output tax for the goods is (1)
nil.
The change of use of the vehicle from making taxable supplies to non taxable (1)
supplies gives rise to a section 17(2) „adjustment‟. You will be deemed to have
supplied the vehicle in the course of your trade.
The value of supply of the Nissan pickup given to your son will be calculated as
follows:
A * (B – C) (0.5)
Where A is the lesser of cost or open market value of the vehicle (0.5)
B is the original percentage usage to make taxable supplies (0.5)
C is the current percentage usage to make taxable supplies (0.5)
14,500 * (100% – 15%) = $12,325 (1)
Output tax thereon will thus be 12,325 * 15/115 = $1,607.61 (1)
Total output tax to be accounted for $1,645.82 (1)
(15)
Regards
C Accountant
69

7(a)(i) Conversion of the business from making taxable supplies to making partly taxable supplies
requires Again (Pvt) Ltd to make an output tax adjustment .(section 18(2) (1 mark)
Output tax will be determined by applying 15% of the value of assets that qualified for input
tax deduction excluding the value of assets that did not qualify for input tax deduction at the
initial purchase. (1 mark)
The output tax will be on the 35% portion of exempt supplies (1 mark)
Output tax will thus be determined as follows:
Equipment $20,000 * 35% * 15% = $1,050.00 (1 mark)
Furniture $10,000 * 35%* 15% = $525.00 (1 mark)
Computer Equipment $15,000 * 35% * 15% = $ 787.50 (1 mark)
Nissan Navara (input tax not claimed initially) $40,000 * 35% * 0 = $0 (1 mark)
Delivery Van $35,000 * 35% * 15% = $1,837.50 (1 mark)
Passenger motor vehicles $50,000 * 35% * 0 = $0 (1 mark)
Canteen Equipment (entertainment) $10,000 * 35% * 0 = $0 (1 mark)
Coffee Machine (entertainment) $10,000 * 35% * 0 = $0 (1 mark)
Office Building $130,000 * 35% * 15% = $6,825.00 (1 mark)
Total output tax $11,025.00 (1 mark)
7(a) (ii) The following are the conditions for zero rating of the sale of a business as a going concern
(section 10(1) (e) :
Parties should agree in writing that the sale is of a going concern. (1 mark)
All assets necessary for the carrying on of the trade must have been sold to the purchaser.
(1 mark)
Parties must agree that the sale price includes VAT at 0% (1 mark)
Both parties must be registered operators (1 mark)
7(b) Peter accounts for VAT on the invoice basis and originally claimed input tax of $1,369.57 in
the tax period ending February 2010. (1 mark)
 but had not paid the full purchase price by 31 August 2011 which is over twelve months after
the tax period in which the input tax was claimed, therefore (1mark)
 output tax should be accounted for on the unpaid portion (section 22(4) as follows: 10,500 *
20% * 15/115 = $273.91 (1 mark)
70

Services rendered are potentially subject to VAT (1 mark)
The company should have registered for VAT on realising that its revenue would exceed the
registration threshold of $60,000 per annum (1 mark)
Since the company‟s turnover was $85,000 ZIMRA will deem the gross revenue to include VAT
(1 mark)
VAT to be paid will thus be $85,000 *3/23 = $11,086.97 (1 mark)
ZIMRA may impose 100% penalty and interest at 10% per annum for nonpayment of VAT
(1 mark).
ZIMRA may also prosecute the company for failure to register for VAT (1 mark)
In theory input tax is claimable if the company is registered for VAT (1 mark)
If the company eventually registered for VAT ZIMRA may allow it to claim full input tax incurred
on its behalf as it would have reimbursed the full expenses incurred on its behalf. (1 mark)
Input tax claimable will thus be:
Legal fees $150 * 3/23 = $19, 57 (1 mark)
Consumable material $15,000 * 3/23 = $1,956.52 (1 mark)
Computer Equipment $3,000 * 3/23 = $391.30 (1 mark)
Furniture, fittings and beauty equipment $30,000 * 3/23 = $3,913.04 (1 mark)
71

CTA LEVEL 1
PRACTICE QUESTIONS
TUTORIAL 3
72

QUESTION 1
In March 2012,Plot Developers (Private) Limited, a company registered in Zimbabwe with a

31st December year end, acquired 200 hectares of land for US $1,500, 000 with the intention of
developing residential stands for resale.
Development costs were:

US$
Survey fees 50,000
Expenditure on roads, water reticulation etc 250,000
200 stands were available for sale.
150 stands were sold on 30th June 2013 at $12,000 each.
The terms were a 75% deposit payable immediately with 15% payable on 1st January 2014 and
and a further 10% payable on 1st January 2015.Interest at the rate of 8% per annum was payable on
amounts outstanding.
The remaining 50 stands were sold on 30th September 2014 at $15,000 each.
Again, a 75% deposit was payable immediately with 15% payable on 1st January 2015 and
a further 10% payable on 1st January 2016. Interest at the rate of 10% per annum was payable on
amounts outstanding.
The following administration expenses (all tax deductible) were incurred:

US$
Year ended 31st December 2013 8,000
REQUIRED
Compute the company's tax payable in respect of the tax years ended 31st December 2013 to
31st December 2016 assuming that all the terms of the agreement are met by the purchasers.
(26 MARKS)
73

QUESTION 2 [30 MARKS]
Bornfree Moyo is a commercial farmer in Mashonaland West.

He submits the following accounts in respect of his mixed farming venture
in support of his return for the year ended 31st December 2013:
Livestock account
$ $ $ $ $ $
Opening stock
2 Bulls 400 800 60 Sales 30,000
60 Cows 300 18,000 10 Deaths
20 Oxen 250 5,000
10 Heifers 150 1,500 Closing stock
40 Tollies 100 4,000 5 Bulls 400 2,000
50 Calves 50 2,500 130 Cows 300 39,000
31,800 30 Oxen 250 7,500
Purchases 40 Heifers 150 6,000
1 Bull 800 40 Tollies 100 4,000
2 Bulls @ $1,000 2,000 60 Calves 50 3,000
50 Cows 14,000 61,500

16,800
50 Inherited - -
90 Births - -
Livestock profit 42,900
375 91,500 375 91,500
74

Income statement $ $
Expenditure Income
Livestock expenses 38,000 Livestock profit 42,900
120,00
Labour 35,000 Tobacco sales 0
Fertiliser 30,000 Maize sales 40,000
Electricity and telephones 6,000 Insurance claim 15,000
Motor vehicle expenses 2,500 Other farm income 6,000
Repairs 950 Bank interest 5,000

Local company
Interest 2,000 dividend 2,500
General expenses 3,750
Insurance 1,250
Sundry expenses 10,000
Fencing 2,000
Hire of plant 11,000
Depreciation 12,000
Net profit 76,950
231,400 231,400
Notes to Income statement
1. The taxpayer inherited 50 head of cattle from his late father's estate and incorporated them into his own
herd. The following is established :
Value for estate

Inheritance FSV of deceased duty
30 cows $200 each 9,500
20 oxen $150 each 4,500
2. He farms in area that has been gazetted as a "drought stricken area". 10 cows were sold as a result of the
drought for $5,000. (these are included in the sales figure per livestock account).
75

He makes an election in terms of paragraph 5 of the 7th Schedule.
3. The interest paid was in respect of a loan of $100,000.Of this amount, $75,000 was used to build his
house. The balance was used to finance farming operational expenses.
4. The insurance claim was in respect of destruction, by fire of a grading shed. A new one was constructed
for $25,000.
5. The following schedules were submitted :
(a) General expenses
Legal expenses in respect of acquisition of water rights 1,750
Packing materials 2,000
3,750
(b) Insurance
Valuation fee (buildings ; fire insurance) 750
Hail insurance 200
Farmer B Moyo‟s own life 300
1,250
(c) Sundry expenses
Aerial survey 1,500
Contour ridging to prevent soil erosion 1,000
Temporary roads 1,800
Attendance at beef seminar 1,200
Donation to church 500
Loan raising fee (re : loan of $100,000) 4,000
10,000
76

Assets
Income tax values at 31 Dec. 2012:
Grading shed ( constructed in 31 Dec 2012 cost $20,000) 15,000
Plant and equipment (purchased in year ended 31 Dec 2012) 12,000
Irrigation equipment (purchased in year ended 31 Dec 2012) 15,000
Truck (purchased in year ended 31 Dec 2012) 5,000
Other additions brought into use during the year :
Grading shed replacement 25,000
Homestead 75,000
Dam 15,000
All the assets were used for farming except the dam which was only used for farming in April
2014.
REQUIRED
REQUIRED
Calculate the minimum taxable income of Mr. B Moyo in respect of the year ended 31st
Decemberthe
Calculate 2013.
minimum taxable income of Mr. B Moyo in
respect of the year ended 31st December 2013.
77

QUESTION 3
Mhofu Ranchers (Pvt) Ltd was incorporated in January 2013. In March 2013,the company acquired
a farm in Masvingo Province under the Government sponsored A2 land resettlement scheme and
immediately commenced livestock farming operations.
The company paid an amount of $120,000 allocated to the farm improvements on the farm as follows:
Ranching land nil

Farm manager's house 20 000
Staff housing (10 units ) 30 000
Dam 25 000
Farm implements 45 000
120 000
In April 2013, the company purchased the following livestock:
3 Bulls 2 400
150 Cows 60 000
90 Oxen 32 000
28 Heifers 7 000
35 Tollies 5 600
50 Calves 5 200
112 200
Livestock movements between 1 April 2013 and 31 December 2013 were as follows:
● 25 calves were born on the farm during the year;
● 40 calves were reclassified to heifers
● 10 calves were reclassified to tollies;
● 5 tollies were slaughtered for rations;
● 20 tollies were reclassified to oxen; and
● 22 heifers were reclassified to cows.
Notes
(i) 40 cows and 50 oxen were sold for $ 45,000 to some private abattoirs during the first half of the year.
(ii) In July 2013, the farm was declared as an epidemic area by the Minister of Agriculture due to an
outbreak of foot and mouth disease. The company was forced to sale 30 cows for $21,000 as
a result of the epidemic disease.
(iii) Eventually in October 2013, the epidemic disease was brought under control and the farm was
declared by the Minister of Agriculture to be free from foot and mouth disease.
78

(iv) The company restocked the farm with 50 cows which were purchased for $ 30,000 in October 2013.
(v) The department of AGRITEX determines the carrying capacity of the farm at 270 herd.
(iii) The herd's direct running expenses for the year amounted to $ 8 000. All expenses are allowable
for tax.
The following expenditure was incurred during the course of the year:
Stumping and clearing of land 3 000 4 000

Sinking of boreholes and wells 12 000 8 000
New fencing 2 600 5 600
Borehole equipment 15 000 26 000
The approved fixed standard values (FSVs') of the livestock are as follows:
Class FSV($)
Bulls 800
Cows 600
Heifers 500
Oxen 450
Tollies 250
Calves 150
REQUIRED
1. Prepare a livestock reconciliation statement.
2. Calculate the minimum tax payable assuming that the company makes all the elections available
in the 7th Schedule to minimize tax.
30 MARKS
79

QUESTION 4
ABC (Pvt) Ltd is a refrigerator (fridge) and deep freeze (freezer) manufacturer based in Harare.
ABC‟s accountant has been on sick leave and the bookkeeper attempted to prepare its VAT return
for its tax period ending 30 September 2013.
The bookkeeper is not familiar with the VAT treatment applied to income and expense items posted
to the VAT output account. She therefore requested your assistance in checking the accuracy of the
output tax amount.
A detailed analysis, with explanations of ABC‟s output tax amount of $119,382.52 for its tax period
ending 30 September 2013 is as follows:
$
Sales (note 1) 4,500.00
Sales to employees (note 2) 170.13
Sale of fixed property (note 3) 115,434.78
Sale of vehicle (note 4) -
Sale of tables and chairs (note 5) 420.00
Interest on savings account (note 6) 912.00
Indemnity payment (note 7) 1,108.70
Company Car fringe benefit (note 8) 228.26
Rentals (note 9) -
Settlement Discount received (note 10) -
Recovery of bad debts (note 11) 1,108.70
Long-outstanding creditor (note 12) -
Fridge taken by the shareholder (note 13) -
119,382.52
Notes
1) ABC (Pvt) Ltd sells fridges and freezers to both local and foreign customers. A review of the
sales for period 1 September to 30 September 2013 revealed gross sales of $21,000
(excluding VAT) to local customers and gross sales of $9,000 to foreign customers. Sales to
foreign customers were consigned to the customers‟ addresses by ABC.
2) During the month of September 2013, so as to clear old stock, ABC allowed its employees to
purchase fridges and freezers at a discounted price. Old stock was sold to its employees at a
selling price of $5,000 (inclusive of VAT). This stock had a cost of $6,500 (inclusive of
VAT) and would normally have been sold to customers for $7,000.
3) During the month of September 2013, ABC sold a commercial property that it had held as an
investment for a number of years and that had been used 75% for making taxable supplies
and 25% as a clinic used mainly by its employees. The purchaser is to settle the purchase
price of $885,000 (inclusive of VAT) in three instalments of $295,000 (inclusive of VAT)
each. The first instalment was received on 30 September 2013. The registration and transfer
of ownership has not yet taken place.
4) On 15 September 2013 ABC (Pvt) Ltd sold its old delivery vehicle to a non registered
operator for $13,500. The vehicle had been purchased from a registered operator.
80

5) On 20 September, ABC (Pvt) Ltd sold old tables and chairs to a sports club for $2,800. These
tables and chairs had been bought by ABC for its canteen that provides free meals to
employees.
6) Output tax of $912 was provided for on the interest earned by ABC (Pvt) Ltd on its savings
account.
7) An indemnity award of $8,500 was received by ABC (Pvt) Ltd from its insurers for a sales
representative‟s company car, a Toyota Camry that was stolen in July 2013 together with a
laptop computer and a cellular phone. Of the award, $7,500 was for the motor vehicle, $850
for the laptop computer and $150. Both, the motor vehicle, the laptop computer and the
cellular phone were company assets which were purchased from registered operators.
8) Five of ABC‟s employees have use of company vehicles for business and private use and one
employee uses a company vehicle, with an engine capacity of 1500cc during the day and
parks it at the company premises at night and during weekends and public holidays. Two of
the vehicles have engine capacities that range from 1501 to 2000cc and three have engine
capacities above 3000cc.
9) ABC (Pvt) Ltd owns a block of flats that is let out for both commercial and residential
purposes. During the month of September, it received rentals of $15,500, 65% of which were
from residential tenants.
10) ABC (Pvt) Ltd purchases 60% of its raw materials from Cold Parts (Pvt) ltd, being a major
customer of Cold Parts; it qualifies for a favourable settlement discount. On 28 September
2013, ABC made a payment of $32,500 (including VAT) to Cold Parts being the settlement
of its purchases made during August 2011 of $35,000 (including VAT).
11) During January 2013, ABC sold stock to Mountain Breeze (Pvt) Ltd for $13,500 (inclusive of
VAT) on credit. In March 2013, Mountain Breeze went into liquidation and the accountant of
ABC wrote off the entire $13,500 owing as a bad debt. In September 2013, $8,500 was
received from the liquidator of Mountain Breeze.
12) In August 2012, ABC bought stock from Atlas (Pvt) Ltd, a registered operator for $10,750
(inclusive of VAT) and claimed input tax in the relevant tax period. It encountered quality
problems with this stock and decided to pay the supplier $6,500 (inclusive of VAT) in August
2012. It refused to settle this account until quality problems are solve. By 30 September 2013,
it still had not settled the account.
13) Jack is the sole shareholder of ABC (Pvt) Ltd and is not employed by the company. On 13
September 2013, he removed a fridge from the trading stock for his personal use. He needed
a new fridge in his kitchen at home. The fridge had cost ABC $1,550 (inclusive of VAT) and
had a market value of $2,500.
Required: Recalculate the output tax for ABC (Pvt) Ltd‟s September 2013 tax period. Your solution
should deal with each transaction listed and should be supported by brief explanations. 30 marks
81

QUESTION 5
10(a) LPF (Pvt) Ltd is registered for VAT and has business interests in hotels and manufacturing.
The following information was extracted from records for the month of July 2013: Unless stated, the
prices are inclusive of VAT where applicable.
Income $
Cash sales (notes 1 and 2) 215,000.00
Credit sales (note 3) 250,000.00
Expenditure
Purchases of raw material 88,000.00
Accounting fees 4,500.00
Debit notes (note 4) 2,000.00
Legal fees (note 5) 2,500.00
Petrol and diesel 4,000.00
Municipal rates 1,200.00
Subscriptions (note 6) 2,620.00
Entertainment (note 7) 600.00
Cell phones (note 9) 1,500.00
Motor vehicles (Note 8 150,000.00
Office rentals 1,758.00
Telephone 1,256.00
Note: The amounts are inclusive of tax where applicable
Notes:
1) 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.
2) Cash sales also included payments made by tourists in hotel bookings of $6,000.00. The
payments were made through an International Debit card.
3) Credit sales included supplies of $56,000.00 made to non-registered operators and supplies of
$65,000.00 to a regular customer from Zambia who was in Zimbabwe on holiday. He took
delivery of the goods himself.
4) The company issued debit notes valued at $2,000.00 to a non-registered operator.
5) 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.
6) Subscriptions were as follows:

 Medical aid $1,500.00
 Hotel association of Zimbabwe $500.00
 ICAZ membership fees for the Finance Director $620
7) Entertainment is made up of the following items

 Meals bought from chicken inn for company employees who exceeded the company‟s
monthly target for $300.00
82
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 The other $300.00 is in respect of expenditure incurred by the company‟s sales

representative in hotel bills and food in Bulawayo on company business.
8) The company purchased a Range Rover SUV with an engine capacity of 3200cc and a Toyota
D4D single cab with an engine capacity of 3000cc for $110,000 and $40,000 respectively. The
Range Rover was allocated to the company‟s managing director as part of his benefits while the
Toyota was allocated to the company‟s sales manager for both business and private use.
9) Three cell phones worth $1,200.00 were bought for the company‟s employees for use by sales
representatives while airtime worth $300 was purchased during the month. The airtime was
distributed equally to ten employees for both business and private use. The company has an
agreement with ZIMRA that 75% use of both cellphones and airtime will be for business while
the balance will be for private.
10) In addition to the two employees above, three (3) employees had use of company vehicles for
both business and private use. The engine capacity for the three vehicles ranged between 1,680cc
and 1,900cc.
11) Due to high demand for fast foods at the hotel, the company had to use its canteen equipment to
prepare meals for sale at the hotel. It estimates that 95% of the meals will be for the hotel and the
balance for employees. It cost the company $5,600 to purchase the equipment and at the time of
this change, the equipment had a market value of $4,800.
12) The company‟s longtime customer left the country and is believed to be permanently resident in
the UK. At the time he left the country, he had not paid an amount of $25,000 owed on goods
purchased on credit. Efforts to collect the debt failed and the company had to write off the debt.
13) The company purchases some of its raw material on credit. By 31 July 2013, it had not paid an
amount of $4,500.00 owed on purchases it made from one of its suppliers who has closed his
business and his whereabouts are unknown. The goods had been purchased on 25 June 2012.
Required: Calculate the Value Added Tax payable or refundable. (25 marks)
83

CTA LEVEL 1
SUGGESTED SOLUTIONS
TUTORIAL 3
84

SUGGESTED SOLUTION: 1
PLOT DEVELOPERS (Pvt) Ltd
COMPUTATION OF TAX PAYABLE
Cost per stand 1,500.000

Development costs 300.000
1,800.000
Cost per stand 900.000
Gross sales (150 x $12,000) 1,800.000

Cost of sales (150 x $9,000) (1,350.00)
450,000
Administration expenses (8,000)
Section 17 allowance: 2013 (112,500)

329,500
Add: Interest on outstanding instalments 18,000
Taxable Income 347,500
Tax payable at 25% 86,875

3% aids levy 2,606
Taxable payable 89,481
Gross profit = 25%
Gross sales (50 x $15,000) 750,000

Cost of sales (50 x $9,000) (450,000)
300,000
Add: Interest on outstanding instalments 19,088
Section 17 allowance: 2013 112,500

131,588
431,588
Less: Administration expenses (12,000)

(159,000)
Taxable Income 272,588

3% aids levy 2,044
70,191
Gross profit = 40 %
85

Interest on outstanding instalments 7,500

154,500
Less: administration expenses (15,000)

(45,000)
109,500
Taxable payable at 25% 27,375
3% AIDS levy 821

Tax payable 28,196
Interest on outstanding instalments -

30,000
Less: administration expenses (25,000)
Section 17 allowance: 2014 -

(25,000)
3% aids levy 36
Tax payable 1,285
86

PLOT DEVELOPERS (PVT) LTD

COMPUTATION OF S17 ALLOWANCE
31st Dec 31st Dec 31st Dec 31st Dec

2012 2013 2014 2015
150 stands
Amount due 1,800,000 450,000 180,000
Amount paid (1,350,000) (270,000) (180,000) (1,800,000)
Amount outstanding 450,000 180,000 -
50 Stands
Amount due 750,000 187,500 75,000
Amount paid (565,500) (112,500) (75,000) (750,000)
Amount outstanding - 187,500 75,000 -
Total amount outstanding 450,000 367,500 75,000
Gross profit % = 25% 40% 40%
S17 allowance 112,500 147,000 30,000
INTEREST OUTSTANDING
Interest on $450,000 18,000
Interest of $180,000 14,400
Interest on $187,500 4,688
Interest on $ 75,000 7,500
18,000 19,088 7,500 -
87

SUGGESTED SOLUTION : 2
Computation of taxable income
+ -
USD USD

Depreciation 12,000
Inherited stock(9,500 +4,500 : estate valuation] 14,000
Private interest payable (2,000 x 75/100) 1,500
Private loan raising fees (4,000 x 75/100) 3,000
Dividend 2,500
Bank interest 5,000
Insurance claim 15,000
Legal expenses in re: of water rights 1,750
Legal expenses in re: packing material -
Valuation fee (buildings ; fire insurance) -
Hail insurance -
Farmer B Moyo's own life 300
Aerial survey -
Contour ridging to prevent soil erosion -
Temporary roads -
Attendance at beef seminar -
Donation to church 500
Drought sales c/fwd 293
Recoupment - grading shed -
110,000 (55,543)
(55,543)
Drought sales 5,000
FSV of sales (10 x 300) (3,000)

Expenses 10 x 38,000 380,000
0.5(182 +305) 243.5 (1,560)

440
2/3 carried forward 293
88
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Asset ITV at Disposal Additions SIA W&T 7th Sched. ITV at

31.12.2012 31.12.2013
Grading shed 15,000 15,000 -

Plant & equipment 12,000 (4,000) 8,000
Irrigation equipment 15,000 (5,000) 10,000
Truck 5,000 (1,667) 3,333
Grading shed replacement 25,000 (6,250) 18,750
Homestead 75.000 - -
Dam 15,000 (15,000) -
44,500 15,000 115,000 (6,250) (10,667) (15,000) 41,750
89

MHOFU RANCHERS (PVT) LTD
1. Farming
Livestock reconciliation account
Class Bulls Cows Heifers Oxen Tollies Calves Total
Purchases 3 150 28 90 35 50 356
Purchases (restocking) 50 50
Births 25 25
Prom. In 40 10 50
Prom. Out 22 (22) 20 (20) (50) (50)
Sales (normal) (40) (50) (90)
Sales (epidemic) (30) (30)
Slaughtered (5) (5)
Closing stock 3 152 46 60 20 25 306
FSV 800 600 500 450 250 150
Opening stock 1 Jan 2013 - - - - - - -
Closing stock 31 Dec 2013 2,400 91,200 23,000 27,000 5,000 3,750 152,350
90

MHOFU RANCHER (Pvt) Ltd

TAX COMPUTATION
31st DECEMBER 2012
Sales : Normal 45,000
: Epidermic 21,000
66,000
Less:
Purchases April 2013 112,200
Purchases (restocking) 30,000
142,200
Closing stock as at 31st Dec 2013 (152,350)
10,150
Gross profit 76,150
Livestock expenses (8,000)
68,150
Capital allowances (37,650)
30,500
Drought relief (954)
Restocking allowance (4,200)

Epidemic sales
Epidemic sales 21,000

Less:
30 cows @
Cost at FSV: 600 (18,000)
3,000
91

Less:
Applicable livestock expenses:
Livestock expenses x forced sales
1/2 ( opening stock + closing stock)
8,000 x 30
1/2 (0+306)
240,000 (1,569)
153
Taxed over 3 years per para 5 7th schedule 1,431
2/3 carried forward 954
Restocking allowance
Purchases ( April 2013) 356
Births 25
Sales (90 + 30) (120)
Deaths (5)
Livestock on hand prior to restocking 256
Restocking herd 50
On hand on 31 December 2013 306

Assessed carrying capacity of land 270
Livestock on hand prior to restocking (256)

Difference which should not have been exceeded 14
Restocking allowance restricted ( 50% of 30,000 ) x 14/50 4,200
92

CAPITAL
ALLOWANCES Us$ Us$
Farm manager's house
Cost 20,000
5% Wear & Tear (1,000) 1,000
I.T.V. @ 31.01.2013 19,000
Staff housing (10 units )
Cost 30,000
5% Wear & Tear (1,500) 1,500
I.T.V. @ 31.01.2013 28,500
Farm implements
Cost 45,000
25% S.I.A. (11,250) 11,250
I.T.V. @ 31.01.2013 33,750
Dam
Purchased asset does not rank for 7th Schedule
allowance -
Ranching land
No tax allowances -
Borehole equipment
Cost 15,000
Current year 25% S .I.A. (3,750) 3,750
I.T.V. @ 31.01.2013 11,250
Stumping and clearing of land
100% paragraph 2 allowance of 7th Schedule 3,000
93

Sinking of boreholes and wells
100% paragraph 2 allowance of 7th Schedule 12,000
New fencing
Paragraph 2 allowance of 7th
Schedule 2,600
35,100
94

Output Tax for ABC (Pvt) Ltd for the tax period ending 30 September 2011
$
Sales (note 1) 3,150.00(1)
Sales to employees (note 2) 652.17 (1)
Sales to employees, fringe benefit (note 2) 195.65 (1)
Sale of fixed property (note 3) 28,858.70 (1)
Sale of vehicle (note 4) 1,760.87 (1)
Sale of tables and chairs (note 5) - (1)
Interest on savings account (note 6) - (1)
Indemnity payment (note 7) 130.43 (1)
Company Car Fringe Benefit (note 8) 208.70 (1)
Rentals (note 9) 707.61 (1)
Settlement Discount Received (note 10) 326.09 (1)
Recovery of bad debt (note 11) 1,108.70 (1)
Long-outstanding creditor (note 12) 554.35 (1)
Fridge taken by the shareholder (note 13) 326.09 (1)
Total Output Tax 37,979.36
Notes
1. Export sales are a zero rated supply if its meets the requirements for exports. The consigning of the goods
to customers addresses qualifies the sales for zero rating. Only local sales will be charged VAT as follows:
$21,000 * 15% = $3,150. (1)
2. Output tax on sales to employees should be accounted for as follows: $5000 *15/115 = $652.17 (1/2).
Sales to employees at less than cost results in a fringe benefit and the employer is deemed to have supplied
goods to the employees (section 17(3) hence VAT is calculated as follows: $6,500 (lower of cost or
open market value) - $5,000 * 15/115 = $195.65) (1)
3. The time of supply for sale of fixed property is deemed to be the earlier of registry at the deeds office or
any payment being made. The property has not been registered yet hence the time of supply is
September 2011 when payment was received. Output tax should be accounted for on the amount received,
i.e., $295,000 * 15/115 *75% = $28,858.70 (1).
4. The delivery vehicle was not a passenger motor vehicle as defined. Output tax of
$1,760.87 ($13,500*15/115) should be accounted for. (1).
5. The tables were used for entertainment purposes hence input tax was not claimed on their purchase
(section 16(2) (a). Output tax will not be accounted for on their sale. (1)
6. Interest is a financial service which is exempt from VAT. No output tax should be raised on the interest
earned. (1)
95

7. No output tax should be raised on the indemnity in respect of the Toyota Camry as it is a passenger motor
vehicle which did not qualify for input tax credit on its purchase. (1)
Output tax should be raised on the indemnity for the laptop computer and the cellular phone as follows:
($850 + $150) *15/115 = $130.43 (1)
8. The use of company vehicles for both private and business purpose by employees gives raise a taxable
benefit in the hands of the employees. The employer will be deemed to have supplied goods and services
to the employees (section17 (3) on which output tax should be raised. Output tax on the benefit will
thus be (200 *2) + (400 * 3) = $1,600 * 15/115 = $208.70. (1)
No output tax arises on the use of the vehicle by one employer who parks it at the employer‟s premises
at night and during weekends and holidays. (1)
9. Output tax should be raised on commercial rentals only as follows: $15,500 * 35% * 15/115 = $707.61.
Supply of residential accommodation is exempt from VAT hence no output tax should be raised. (1)
10. ABC claimed full input tax on the initial purchase of the raw material in August 2011. Receipt of a
settlement discount gives raise to output tax as follows: (35,000 – 32,500) * 15/115 = $326.09. (1)
11. When ABC wrote off the debt in March 2011, full input tax was claimed (section 22(1). Output tax of
$1,108.70 (8,500 *15/115) arises if the debt is recovered in full or in part (section 22(3). The adjustment
was correctly recorded. (1)
12. When a registered operator claimed input tax on credit purchases and fails to pay for the purchases after
twelve months, output tax arises on the outstanding amount (section 22(4).
Output tax of $554.35 (10,750 – 6,500) * 15/115 should be raised. (1)
13. Output tax should be raised as there is change of use from taxable supplies to non taxable supplies.
The value of the supply will be the open market value of the fridge taken by the shareholder.
(Section 17(1). Output tax of $326.09 (2500 *15/115) should be raised. (1)
Jack is not an employee of the company hence not VAT arises on the deemed benefit. (1)
Total: 30 marks.
96

Calculation of VAT
payable/refundable
Output
Cash Sales (215000 - 1000-6000)*3/23 27,130.43 1
Sales to foreign tourists (6000*0%) - 1
Credit Sales (250000*3/23) 32,608.70 1
Computer sold to director (1200*3/23) 156.52 1
Debit notes (2000*3/23) 260.87 1
Motoring benefit (400+300+(200*3)*3/23) 169.57 1
Cellphone benefit (1200+300)*25%*3/23 48.91 1
Outstanding debt (4,500 * 3/23) 586.96 1
Total Output tax 60,961.96
Input
Purchases of raw material (88000*3/23) 11,478.26 1
Accounting fees (4500*3/23) 586.96 1

Legal fees 0 - 1
Municipal rates 0 - 1
Petrol and Diesel (4000*0) - 1
HAZ subscriptions (500*3/23) 65.22 1

ICAZ subscriptions (620*0) - 1
Medical Aid (1500*0) - 1
Entertainment: Staff meals (300 * 0) - 1
Entertainment: Hotel bills (300*00 39.13 1
Cell phones (1200*3/23) 156.52 1

Motor vehicles purchases:
Range Rover (110000*0) - 1
Motor vehicle: Toyota Single
cab (40,000 *3/23) 5,217.39 1
Office rentals (1758*3/23) 1
97

229.30
Telephone (1256*3/23) 163.83 1
Dad debt written off (25000*3/23) 3,260.87 1
Canteen Equipment (4,800 * (95%-0)*3/23 594.78 1
Total Input Tax 21,792.26
VAT payable 39,169.70
98

CTA LEVEL 1
PRACTICE QUESTIONS
TUTORIAL 4
99

QUESTION 1 (MINING)
Bullions (Pvt) Ltd is a Zimbabwean registered company which operates a gold mine in the Great
Dyke town of Chinhoyi in Zimbabwe. 60% of its issued share capital is owned by XYAI LTD a
company registered in China.
During the tax year ended 31 December 2013, Bullions (Pvt) Ltd borrowed $50 million dollars from
a Chinese bank in order to finance an expansion programme for the mine and thereby increase
production by 50%.
The loan was guaranteed by the Chinese shareholders.
The income statement for the year ended 31 December 2013 reflected a net profit figure of $900,000
after taking into account the following adjustments:
Income
Profit on sale of generator 2,000
Insurance proceeds 20,000
Profit on sale of mining claims 300,000
Expenses
Administration expenses 120,000
Annuity purchased 20,000
Development expenditure 230,000
Donations 372,000
Interest payable 186,000
Mining and milling expenditure 400,000
Mining claims acquired 90,000
Preliminary surveys and boreholes 130,000
Prospecting expenditure 150,000
Shaft sinking 65,000
Other information
1. Administration expenses
Administration expenses include a payment of $20,000 which was to terminate the
service contract of a former mine manager as part of a reorganisation programme and
$5,000 for the cost of materials donated by the company to the mine sports club towards
the construction of a swimming pool.
2. Annuity purchased
The annuity for $15,000 was purchased to discharge the company‟s contractual obligation
to pay a pension to a former manager who was ineligible to join the company‟s pension
scheme.
3. Interest payable
The interest was payable to the Chinese bank.
100

The average debt to equity ratio of Bullion (Pvt) Ltd during the year ended 31 December
2013 was 4:1.
4. Donations
Donation to the Chinhoyi Mayor‟s Cheer Fund 12,000
Donation to the National Scholarship Fund 150,000
Donation to the Chinhoyi Town Council bursary Fund 20,000
Donation to Kutama Mission School for construction
of school building 110,000
Donation of laboratory equipment to Heritage Trust School 80,000
372,000
5. Additions to buildings
Residence for managing director 250,000
Extension to mine hospital 60,000
Staff Canteen 34,000
Sports club renovations 25,000
369,000
1. Profit on sale of generator

The generator had been acquired in 2010 for $7,000 and had a book value of $6,300.
It was sold for $8,300.
A Mazda 6 sedan which had been purchased for $25,000 in May 2010 was written off in an
accident.
Insurance proceeds of $20,000 were received.
2. Profit on sale of mining claim

The mining claim had been acquired for $25,000; it was abandoned and sold for $325,000.
REQUIRED
Calculate the company’s minimum taxable income or maximum tax loss for the year
ended 31st December 2013 assuming that the company claims capital expenditure using
“new mine basis”.
27 MARKS
101

QUESTION 2
Golden Quarries (Pvt) Ltd is a Zimbabwe registered company which operates a gold mine in Penhalonga.
The company‟s income statement for the year ended 31st December 2013 reflects a net profit of $1,250,000
after making the following adjustments:
NOTES
Income
Profit on sale of buildings 1 42,000
Profit on sale of mining claims 2 200,000
Profit on sale of shares 3 8,000

Profit on sale of motor vehicles 4 25.300
Expenses
Bad debt 5 25,000
Crushing and milling 175,000
Interest paid 6 160,000
General expenses 7 43,000
Mining claims written off 50,000
New mining claim acquired 300,000
Preliminary surveys and boreholes 68,000
Prospecting expenses 180,000
Shaft sinking 150,000
NOTES
1. Profit on sale of buildings

In April, 2011 the company purchased a plot of land for $20 000 in Mutare with the intention of
building an office in the town. In July 2012 it completed the erection of an administration office on this
land at a cost of $140,000
In June 2013, the company decided to sell this building for$200,000 made up of land $25,000 and
buildings $175,000.
Proceeds from the disposal of this property were used to purchase a block of flats for use by mine
employees for US $400,000.
2. Profit on sale of mining claims

The mining claim which had been acquired in April 2011 for $50,000 was abandoned and sold for
$250,000.
3. Profit on sale of shares

On 1 July, 2011, the company purchased for $10,000 shares which were listed on the Zimbabwe
Stock Exchange. These shares were sold in August 2013 for $18,000.
4. Profit on sale of shares

An Isuzu double cab vehicle which was acquired for the mine manager in July 2012 for $40,000 was
stolen in April 2013. Insurance proceeds amounting to $48,000 were received by the company and
$45,000 was immediately used to purchase a replacement Mazda BT 50 double cab vehicle.
102

5. Bad debt
An amount of US $20,000 was advanced as a loan to an employee who required to go to South Africa
for an urgent operation at a South African medical facility. The operation was unsuccessful and the
employee passed away. The Company has decided to write off the loan advanced as a bad debt
6. Interest paid
The interest was payable to a local financial institution.
The average debt to equity ratio of the company during the year ended 31 December 2013 was 5:1.
7. General Expenses
Mayor‟s cheer fund donation 5,000

Theft of cash by employee 8,000
Donation to Africa University 20,000
Donation to Jairos Jiri Association 10,000

43,000
8. Capital expenditure
The following capital expenditure was incurred during the year:
Residence for mine school headmaster 60,000
Extension to mine secondary school 65,000
Staff canteen 75,000
Block of flats 400,000
Mazda BT50 double cab vehicle for mine manager 45,000
Mining plant paid for but delivered in January 2014 315,000

960,000
REQUIRED
1) Calculate the company’s taxable income for the year ended 31 December 2013 assuming that
the company claims its capital expenditure using the new mine basis.
30 Marks
2) Calculate the capital gains tax liability for the year.
10 Marks
103

QUESTION 3
Capital Gains Tax (CGT) Prim Shoes
Prim Shoes (Private) Limited constructed a factory for $60,000 on its premises in June 2011.
An election for Special Initial Allowance, at 25% of cost, was made for the year ended 31 December
2011. In February 2013, the factory was completely destroyed by fire following an electrical fault. At
this stage, the factory was comprehensively insured for $130 000. The company was able to claim the
full amount from its insurer in June 2013. Insurance proceeds were used to acquire a replacement
factory for $100,000.
REQUIRED
Calculate the capital gains tax payable, if any, by Prim Shoes (Private) Limited for the ended 31
December 2013. (10 MARKS)
Calculate the income tax implications for the year ended 31 December 2013.
(5 MARKS)
104

QUESTION 4
CAPITAL GAINS TAX
Mr & Mrs JONGWE
Immediately after marrying each other, Mr Enos and Mrs Ellen Jongwe jointly purchased a principle
private residence (“PPR”) in October 2012 in Eastlea for an amount of $69 000. The mortgage loan
finance for acquiring the house was obtained from a building society. Interest paid in 2012 and 2013
was $1 800 and $1 200 respectively. Substantial improvements were carried out in the property in
February 2013 at a cost $8 000. They divorced in November 2013 at which time the PPR was sold for
$120 000. Expenses for advertising the house in a local daily newspaper amounted to $600. The net
proceeds were shared equally between them. Capital Gains Withholding Tax of $18 000 was withheld
by the depository and remitted to ZIMRA. From his proceeds, Enos acquired a bachelor‟s flat on the
outskirts of the city for $20 000 whilst Ellen decided to go and live with her parents.
REQUIRED
Calculate the capital gains tax payable (refundable) by (each one of) Enos and Ellen. Enos made
an election in terms of Section 21 of the Capital Gains Tax Act for the applicable part (if any) of
his gain to be “rolled over”. (20 Marks)
105

QUESTION 5
You are a tax consultant in private practice. You receive the following tax queries in respect of the
year ended 31 December 2013 which relate to one of your clients, Bricks Trading (Pvt) Ltd.
1. The company advanced a loan of $12,000 to the operations manager for him to seek
medical treatment for his mother in South Africa.
In addition to the loan of $12,000, the company gave the manager an additional $2,000 to
cover travelling expenses which would be incurred by the mother while seeking medical
treatment in South Africa.
The company has not made any tax adjustments in respect of this transaction.
4 MARKS
2. The company advanced a loan of $1,000 to the technical manager for the purchase of a
computer on 1 July 2013. No PAYE has been deducted in respect of this benefit.
2 MARKS
3. On 29 December 2013, the company paid an amount of $12,000 being insurance premiums for motor
vehicles in respect of the period 1 January 2013 to 31 December 2014.
The amount has not been debited to the income statement but is shown in the balance sheet as a
prepayment. The company‟s directors are not sure on how to treat this amount for tax purposes.
3 MARKS
4. The company paid directors fees amounting to $20,000 to the four Zimbabwean non
executive directors of the company. No tax was deducted on these payments.
4 MARKS
5. The company has claimed the following expenditure as repairs and maintenance :
(i) Cost of replacing window panes in two offices $50
(ii) Replacement of driveway surface of gravel with pavers $2,000
(iii) Repair of cracks caused by faulty foundations and the cost of underpinning the
foundations $2,500.
4 MARKS
6. The company had an estimated income tax liability of $200,000 in respect of the year ended
31 December 2013. No payments have been made to ZIMRA in respect of this liability.
4 MARKS
7. The company provides free lunches in the canteen to all its employees .No tax adjustments
have been made to take into account this benefit.
3 MARKS
8. In August 2013, the company sent its Technical Manager for a course in Germany. Fees for
attending this course were duly paid to the Germany company but no withholding taxes were
withheld.
3 MARKS
106

9. It has been established that payments amounting to $100,000 were made to suppliers who had
not provided the company with tax clearance certificates. The directors would like to know
the potential tax risks associated with this issue.
3 MARKS
REQUIRED
Prepare a report on the tax implications of the above transactions.
30 MARKS
107

CTA LEVEL 1
SUGGESTED SOLUTIONS
TUTORIAL 4
108

BULLION (Pvt) Ltd

TAX
COMPUTATION
YEAR ENDED 31 DECEMBER 2013
+ -
$ $
Profit on sale of generator 2,000
Profit on sale of mining claims (capital) 300,000
Administration expenses - termination of contract -

- cost of
materials -
Annuity -
Development expenditure -
Donation to the Chinhoyi Mayor's cheer fund( not allowable) 12,000
Donation to the National Scholarship Fund [ allow in full s 15(2)r ] -
Donation to the Chinhoyi Town Council bursary fund 20,000

Donation to Kutama Mission school for building (max $100,000 s
15(2)r1) 10,000
Donation of laboratory equipment to Heritage Trust School 80,000

Interest payable : 186,000
Allowable (3;1) - 3/4 x 186,000 (139,500)
Disallowed 46,500
Mining and milling expenditure -
Mining claims acquired (capital) 90,000
Preliminary surveys and boreholes -
Prospecting expenditure (s 15(2)fii) -
Shaft sinking (CRA) 65,000

Capital redemption allowance
109

424,000
Recoupment 16,300
1,404,800 746,000
(746,000)
Tax at 25% 164,700
CRA
Residence for managing director (no restriction) 250,000
Extension to mine hospital (restrict) 50,000
Staff Canteen (no restriction) 34,000
Sports club (no restriction) 25,000
424,000
Recoupment
Mazda 6 sedan 10,000 x 20,000 8,000

25,000
Generator ( recoup full proceeds) 8,300

Mining
claim (capital) 16,300
110

(a) Golden Quarries (Pvt) Ltd

TAX
COMPUTATION
+ -
$ $
Profit per accounts 1,250,000
Profit on sale of buildings (42,000)
Profit on sale of mining claims (200,000)
Profit on sale of shares (8,000)
Profit on sale of motor vehicles (25,300)
Bad debt (capital) 20,000

Crushing and milling -
Interest payable : 160,000
Allowable (3;1) - 3/5 x 160,000 (96,000)
Disallowed [section 16(1) q 64,000

General expenses :
Mayor's cheer fund donation 5,000
Theft of cash by employee [ s 15(2) (a)] -
Donation to Africa University [not for purposes of trade) 20,000

Donation to Jairos Jiri Association [allow s 15(2)(rii) ] -
Mining claims written off (capital) 50,000
New mining claim acquired 300,000

Preliminary surveys and boreholes [s 15(2)(f)(ii)] -
Prospecting expenditure (s 15(2)(f)(ii) -
Capital redemption allowance (1,050,000)
Recoupment 187,000
2,166,000 (1,325,300)
(1,325,300)
111


Residence for mine school headmaster (restricted) 50,000
Extension to mine secondary school (restricted) 50,000
Staff Canteen (no restriction) 75,000
Block of flats (no restriction) 400,000
Isuzu double cab vehicle for mine manager (restricted) 10,000
Mining plant paid for but delivered in January 2012 315,000
1,050,000
Recoupment
Land - no recoupment -
Building ( recoup full proceeds) 175,000
Mining claims : capital profit -
Profit on sale of shares (capital) -
Isuzu double cab 10,000 x 48,000 12,000
40,000
187,000
(b) CAPITAL GAINS TAX

COMPUTATION
ADMIN BUILDING
Selling price 200,000

Less:
Recoupment (175,000)
25,000
Less:
Land (2011) 20,000
Building (2012) 140,000
160,000
Less: CRA claimed on building (140,000)
20,000
2.5% allowance on $20,000 for 3 yrs 1,500
2.5% allowance on $140,000 for 2 yrs 7,000
(28,500)
Potential capital loss (3,500)
112

Proceeds received 200,000
Used to acquire another business property (400,000)

Unutilised proceeds -
Capital gain payable immediately -
CGT payable immediately at 20% -
Potential 15% WHT on disposal of (15% of 200,000) (30,000)
It is important that the company obtains a tax clearance certificate on the transaction
so that it does not pay any capital gains tax.
SHARES
The disposal of listed shares is exempt from capital gains tax; it is subject to a final 1%
withholding tax ($180).
113

Capital Gains Tax (CGT)

Prim Shoes (Pvt) Ltd
Income tax recoupment (3,462)
126,538
Less:
Cost (60,000)
Capital Allowances 15,000
(45,000)
Inflation allowance on $60,000 for 2 years (3,000)
Potential capital gain 78,538
Rolled over [100/130 x 78,538] (60,414)
Capital gain 18,124
CGT at 20% 3,625

CGT 15%
WHT (19,500)
INCOME TAX
ITV at Jan 2013 45,000
Potential recoupment (restricted) 15,000
Unused proceeds 30,000
Actual recoupment (30/130 x 15,000) 3,462
114

MR & MRS JONGWE
Enos Ellen Total
Gross capital amount 60,000 60,000 120,000

Advertisement costs (300) (300) (600)
Less:
Cost of acquisition (34,500) (34,500) (69,000)
Inflation allowance @ 2.5% for 2 years (1,725) (1,725) (3,450)
Interest 2012 (900) (900) (1,800)
Inflation allowance @ 2,5% for 2 years (45) (45) (90)
Interest 20123 (600) (600) (1,200)
Inflation allowance @ 2,5% for 1 year (15) (15) (30)
Improvements (4,000) (4,000) (8,000)
Inflation allowance @ 2,5% for 1 year (100) (100) (200)
Capital gain 17,815 17,815 35,630
Amount rolled over (40/60 x 17,815) (11,877) - -
Capital gain 5,938 17,815 35,630
CGT at 20% 1,187.70 3,563

CGT WHT 9,000.00 9,000
Tax refundable (7,812.30) (5,437)
115

The Directors
Bricks Trading (Pvt) Ltd
Harare
Dear Sir
Re : Tax report for the year ended 31 December 2013.
We present below our report on the tax queries for the year ended 31 December 2013 :
1. The loan for the medical treatment of the mother is subject to a section 8 (1) (f) benefit
equal to 5% plus LIBOR rate.
If the loan had been made for the medical treatment of the employee , spouse or child then no
loan benefit would have accrued .
The $2,000 received for the medical treatment of the mother is exempt from tax in
terms of para 8 of the 3rd Schedule which exempts from tax the value of medical
treatment incurred by the taxpayer or his dependent .
2. A loan benefit of LIBOR rate + 5% accrues in terms of section 8(1) (f) on the loan
advanced for the purchase of a computer.
3. Expenditure is allowable for tax as long as it has been incurred i.e. there is a legal
liability to pay the expense.
This results in an earlier deduction of the expense for tax than under the accounting
matching principle.
4. 20% ($4,000) withholding tax on non executive directors‟ fees is due on the fees paid.
The fees are due for payment to ZIMRA within 10 days of the date of payment.
Failure to pay on time might result in a penalty of up to 100% of the tax due and
interest at the rate of 10% p.a.
5. Cost of replacing window panes are allowable

Replacement of driveway surface of gravel with pavers is an improvement which
is of a capital nature.
The repair of cracks and cost of underpinning foundations are improvements and
not allowable under section 15 (1)b.
116

6. The tax liability should have been payable using the following QPDS:
25-Mar-13 10% 20,000
25-Jun-13 25% 50,000
25-Sep-13 30% 60,000
20-Dec-13 35% 70,000
200,000
There is no penalty for the late payment but a 10% p.a. interest is payable.
7. The provision of free lunches to staff might be considered to be a taxable benefit

liable to tax in terms of section 8( 1)( f).
The amount might also be disallowed as entertainment in the company's hands in terms
of section 16(1)(m).
In practice, ZIMRA allows the staff lunches as a concession and no taxable benefit arises.
8. In terms of the definition of "fees " in the 17th Schedule, an amount paid for training or
education is excluded from the withholding tax.
9. In terms of section 80 , a 10% withholding tax should have been deducted on payments
made to suppliers without tax clearance certificate.
The tax is due for submission to ZIMRA by the 10th day following month of deduction.
A potential penalty of up to 100% of the tax due and interest at 10% p.a. is payable for
late payment.
We hope we have been of assistance.

Please do not hesitate to contact us should you require further clarification.
Yours sincerely,
ABC CONSULTANTS
117
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ADVANCED ZIMBABWE TAX

TAXATION MODULE 2014

ADVANCED ZIMBABWE INCOME TAX

QUESTION 1 (Individual Tax)

Gross salary 18,000

Housing allowance 1,200

Entertainment allowance 1,000

Cash in lieu of leave 9,000

Lump sum payment from pension fund (see note1) 40,000

Contribution to pension scheme (1,080)

Contribution to medical aid society (1,200)

P.A.Y.E deducted from P.AY.E remuneration (22,500)

Original Date purchased Market Disposal

Laptop 800 July 2010 500 200

Toyota Vigo twin cab 50,000 May 2010 30,000 20,000

Office furniture 1,000 June 2010 800 500

1. Mr Jones whose total pension entitlement amounted to $150,000 opted to commute a

2. Mr Jones also received the following income:

Company dividends received from Botswana 800

Less: tax withheld at source (120)

Bank interest received from Botswana 1,000

Less: tax withheld at source (150)

Rentals income from property in Zambia 50,000

Less: tax withheld at source (12,500)

Rental income from property in Zimbabwe 12,000

QUESTION 2 (Individual Tax)

Salary – January 2013 to August 2013 32,000

Interest – Australia financial institutions:

3. The Zimbabwean dividends were paid as follows :

Gross Tax Net

4. The Australia dividends were paid as follows :

*From 1 January 2013 to 30 September 2013 3,000 450 20 2,530

5. The Australian bank interest was paid as follows:

*From 1 January 2013 to 30 September 2013 2,500 250 2,250

Calculate the minimum tax payable by Paul Paulsen in Zimbabwe in respect of

QUESTION 3 (Individual Tax)

Gross salary 80 000

Non employment income earned

(i)$500 for purchasing his wife‟s spectacle;

2. Monthly rentals of $4,000 were payable in advance;

The new service station was operational from 1 November 2013.

30 days 60 days 90 days Total

Amount ($) 20 000 27 000 23 000 70 000

(5) The following is the creditors age analysis:

60 days 390 days Total

Amount ($) 15 000 25 000 40 000

Required: Advise Mr Munda of the VAT considerations to make. (4 marks)

Required: What are the VAT implications of this arrangement? (4 marks)

[Total marks 16]

 Insurance and licensing $1,140

 New bull bar and anti roll bars $1,650

 Staff teas and lunches $400

 Golf Club subscriptions for the managing director $1,210

 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 2013 $35,300

 Invoices dated June 2013 but paid in July 2013 $85,400

Income USD ($)

(5) Office equipment rentals were incurred on the following items:

Housing allowance 1,200

Entertainment allowance 1,000

Cash in lieu of leave 9,000