CHARTERED ACCOUNTANTS EXAMINATIONS

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TECHNICIAN LEVEL
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T5: TAXATION
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THURSDAY 18TH DECEMBER 2014

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TOTAL MARKS – 100; TIME ALLOWED: THREE (3) HOURS

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INSTRUCTIONS TO CANDIDATES

1. You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when to
start writing.

2. This paper is divided into TWO sections:

Section A: Ten (10) multiple choice Compulsory questions.

Section B: FIVE (5) Optional questions. Attempt any FOUR (4) questions.

3. Enter your student number and your National Registration Card number on the front of
the answer booklet. Your name must NOT appear anywhere on your answer booklet.

4. Do NOT write in pencil (except for graphs and diagrams).

5. The marks shown against the requirement(s) for each question should be taken
as an indication of the expected length and depth of the answer.

6. All workings must be done in the answer booklet.

7. Present legible and tidy work.

8. A Taxation Table is provided on pages 2, 3 and 4 of this paper

TAXATION TABLE FOR THE CHARGE YEAR 2014

1 Income tax
 Personal Income tax rates Chargeable Rate (%)
income
(Kwacha)

First 36,000 0
Next 9,600 25
Next 25,200 30
Excess over 70,800 35

Income from farming for individuals

First 36,000 0
Excess over 36,000 10

Gratuity (Qualifying)
First 36,000 0
Over 36,000 25

Terminal benefits
First 35,000 0
Over 35,000 10
2 Company Income tax rates
On income from manufacturing and other 35
On income from farming 10
3 Capital allowances
(a) Implements, plant and machinery and commercial vehicles:
Wear and Tear allowance: Used normally 25
Used in manufacturing,
tourism, farming, leasing 50
(b) Non-Commercial vehicles
Wear and Tear allowance 20
(c) Industrial Buildings:
Wear and Tear allowance 5
Initial allowance 10
Investment allowance 10
(d) Low Cost Housing: (Cost up to K20,000)
Wear and Tear allowance 10
Initial allowance 10
(e) Commercial Buildings
Wear and Tear allowance 2
(f) Farming
Development allowance 10
Farm Works allowance 100
Farm Improvement allowance 100

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4 Property Transfer Tax
Rate of tax on realised value of property other than mining rights 10

5 Value Added Tax

Registration threshold K800,000
Standard Value Added Tax Rate (on VAT exclusive turnover) 16
6 Customs duty
Duty rates on:
(i) Motor cars and Motor vehicles (including station wagons) principally
designed for the transportation of less than ten persons, including the
driver
Customs duty 25
Excise duty:
Cylinder capacity of 1,500cc and less 20
Cylinder capacity of more than 1,500cc 30
(ii) Pick-up trucks/lorries with gross weight not exceeding 20 tonnes:
Customs duty 15
Excise duty 10
(iii) Buses/coaches for the transportation of more than ten persons
Custom duty 15
Excise duty:
Seating capacity of 16 persons and less 25
Seating capacity of 16 persons and more 0
(iv) Trucks/lorries with gross weight exceeding 20 tonnes
Customs Duty 15
Excise Duty 0
(v) The minimum amount of customs duty on motor vehicles in categories from
(i) up to (iii) above is K2,000
6 Presumptive taxes
Turnover tax 3

Presumptive tax for passenger transporters

Seating capacity Tax per annum Tax per day

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 K K
Less than 12 passengers and taxis 600 1.60
From 12 to 17 passengers 1,200 3.30
From 18 to 21 passengers 2,400 6.60
From 22 to 35 passengers 3,600 10.00
From 36 to 49 passengers 4,800 13.00
From 50 to 63 passengers 6,000 16.40
From 64 passengers and over 7,200 19.70

SECTION A

Attempt All Ten (10) multiple choice sub-questions Questions in this section

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QUESTION ONE

1.1 What is the due date for the submission of the return of provisional income tax for the
tax year 2014?

A 30 June 2014
B 31 March 2014
C. 14 June 2014
D. 14 March 2014 (2 marks)

The following information relates to questions 1.2 and 1.3:

Percy has the following income and expenses for the tax year 2014:
K
Profit before capital allowances 35,000
Gross royalties 8,000
Gross salary (PAYE K7,500) 78,000
Approved charity donation 2,800
Management consultancy fees (net) 8,500
Capital allowances 5,500
Dividends received (net) 8,250

1.2 What is the income tax liability for Percy for the tax year 2014?

A K31,522
B K31,468
C K28,125
D K30,488 (2 marks)

1.3 What is the income tax payable by Percy for the tax year 2014?

A K21,322
B K21,268
C K20288
D K17,925 (2 marks)

1.4 What is the due date for the payment of Value Added Tax?

A By the 14th Day following the end of the month to which the tax relates
B By the 30th Day following the end of the month to which the tax relates

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 C By the 21st Day following the end of the month to which the tax relates
D By the 30th Day following the end of the month to which the tax relates
(2 marks)

1.5 James in his business as a sole trader which is registered for Value Added Tax, acquired a
motor van and a motor car at a cost of K45,000 and K30,000 (VAT inclusive)
respectively. He used the motor car 20% for private purposes in the tax year 2014.

What will be the total amount of capital allowances claimable by James in the tax year
2014, rounded off to the nearest Kwacha?

A K13,836
B K16,422
C K15,698
D K14,498 (2 marks)

1.6 Musonda imported a seventeen (17) seater mini bus for use in the transport sector. The
engine capacity was 3200cc. The purchase price was $6500, other incidental costs of
purchase were $540 whilst freight charges were $4000. Insurance costs in transit to the
port of Durban, South Africa was $1200.

What were the amounts of customs duty, excise duty and import VAT paid by Musonda
on the importation of the vehicle, assuming the Zambia Revenue Authority exchange rate
at that time was K5.80/$1 ?

Custom Duty Excise Duty VAT

K K K
A 17,748 26,622 18,458
B 10,649 24,492 16,981
C 10,649 0 13,063
D 17,749 17,749 17,038
(2 marks)
1.7 Which one of the following statements is correct?

A Input VAT on motor cars is recoverable

B Input VAT on entertainment is recoverable
C Input VAT on machinery is recoverable
D Input VAT on diesel is not recoverable (2 marks)

1.8 Which one of the following investment income received by a company is subject to
withholding tax which is not final?

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 A Treasury bills interest
B Dividends
C Rent
D Consultancy (2 marks)

1.9 Bulaya Ltd is a company involved in farming which listed its share on the Lusaka Stock
Exchange three years ago, but only offered more than one third of these shares to
indigenous Zambians in the tax year 2014. The company’s tax adjusted farming profits
for the tax year 2014 amounted to K150,000 and provisional income tax of K2,000 was
paid during the year.

What will be the amount of the company income tax payable Bulaya Ltd for the tax year
2014?

A K11,000
B K7,500
C K5,500
D K2,500 (2 marks)

1.10 What is the due date for the payment of Property Transfer Tax?

A Within 14 days after the completion of the transaction

B Within 21 days after the completion of the transaction
C Within 30 days after the completion of the transaction
D Within 15 days after the completion of the transaction (2 marks)

(Total: 20 marks)

SECTION B

Attempt any FOUR (4) questions out of FIVE (5) questions

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QUESTION TWO

(a) Tom Sakala has worked for DMT Distributers Ltd for many years as a Distribution
Director. He retired on 31 August 2014, when he was 55 years old. His annual salary has
been K264,000 in the tax year 2014. Upon retiring on 31 August 2014, Tom received his
repatriation pay of K45,000, severance pay of K30,000 and a pension from an
approved fund of K580,000.

In the tax year 2014, he was also entitled to a housing allowance of K3,500 per month,
medical allowance of K6,000 per annum, school children’s allowance of K8,000 per
annum per child and a fuel allowance of K1,200 per month .

Tom has three (3) school going children. The school children’s allowance was payable at
the start of each term in January, May and October in equal instalments each year.
During the tax year 2014, Tom received a long term service award in the form of cash of
K3,000 and a gold wrist watch valued at K8,500. This was in recognition of his twenty
year service in the company. This award was made on 30 April 2014.

On 3 May 2014, he received a labour day award which was made up of a laptop worth
K4,800 and K2,600 cash.

DMT Distributers received a national award as the best Transporter Company for the first
half of the year 2014. To recognise the employees’ hard work, the company declared a
bonus that was paid on 31 August 2014. Tom’s bonus was K9,000.

In addition to the above, Tom also received royalties of K25,500 (net) during December
2014.

Pay As You Earn deducted from his emoluments during the tax year 2014 amounted to
K35,000. His other payments in the tax year 2014, included subscriptions to the Institute
of Directors amounting to K3,400, NAPSA contributions of K8,800, school fees for children
of K 9,000 and a donation to a local approved charity K1,080.

Required:

Calculate the total amount of Income Tax payable by Tom Sakala for the tax year 2014.
(16 marks)

(b) A contract of employment can be terminated in many ways.

Required:

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 State four (4) ways in which employment can be terminated other than by retirement.
(4 marks)
(Total: 20marks)

QUESTION THREE

March plc is a VAT registered company that manufactures a variety of cars and makes up
accounts to 31 December each year. Five years ago the company listed its shares on the Lusaka
Stock Exchange and in the tax year 2014, it offered over one third of its shares to indigenous
Zambians. The company made a net profit as per accounts of K860,000 in the year ended 31
December 2014. The profit figure was arrived at after accounting for the following items:

(1) A loss on disposal of equipment of K13,500. The income tax value of the equipment was
K68,500 as at 1 January 2014 and the original cost was K55,000. The disposal proceeds
were K79,000.

(2) Depreciation on capital assets of K120,000.

(3) Incidental expenses in connection with the accommodation of two of the company’s
directors amounting to K40,000. The gross emoluments of each of the two directors
were K145,000, per annum. The directors are accommodated in houses owned by the
National Housing Authority for which the company pays rent amounting to K12,000 each
per month. The rentals paid on the houses during the tax year 2014, were deducted in
the accounts.

(4) Management consultancy fees received of K17,000 (net) was the only investment income
received by the company. This amount had been credited in computing the net profit as
per accounts.

Other information

(1) The company also employed two differently abled persons who are registered with the
Zambian Agency for differently abled persons.

(2) The company provided personal to holder cars to two of its directors throughout the tax
year 2014. The motor cars are both petrol driven and have a cylinder capacity of 3200cc
each. The cost of each car was K40,000 (VAT inclusive) and each car were used 25% for
private purposes.

(3) The company also owns a motor van which was purchased at cost of K70,000 each (VAT
exclusive).

(4) Capital allowances on other implements, plant and machinery other than those mentioned
above amounted to K172,000.

(5) On 1 March 2014, the company purchased a new industrial building at a cost of
K820,000. This included the cost of land of K120,000, administrative offices of K60,000
and the remaining cost was for the factory.The building was brought into use
immediately.

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(6) The company paid provisional income tax amounting of K94,500 during the tax year.

Required

(i) Calculate the tax adjusted business profit of the company for the tax year 2014.
(15 marks)

(ii) The income tax payable by the company for the tax year 2014. (5 marks)

(Total: 20 marks)

QUESTION FOUR

(a) Define the tax point and explain the importance of the tax point for the purpose of Value
Added Tax. (3 marks)

(b) Explain how the basic tax point is determined and describe the circumstances in which it can
be changed. ( 3 marks)

(c) Explain how making exempt supplies differs from making zero rated supplies for the purpose
of VAT. (3marks)

(d) BRT plc is a Zambian company that distributes cotton and other raw materials to blanket
manufacturing companies. The company is registered for VAT. The following information
has been extracted from the management accounts for the month of November 2014:

Sales 149,925
Cost of sales (93,975)
Gross profit 55,950
Expenses
Depreciation (1,875)
Bad debts written off (9,750)
General overheads (15,900)
Operating expenses (18,450)
Net profit 9,975

Additional information

1. Exempt supplies taken as a proportion of total sales amount to 10%. Included in the
remainder are zero rated supplies of K18,750.

2. 15% of the standard rated sales were made to customers who are not registered for VAT.

3. Included in cost of sales are purchases totalling K94,200. These include exempt
purchases whose value was K22,500. The remainder of the purchases are standard rated
for VAT purposes. 20% of the standard rated purchases were from non Value Added Tax
registered traders.

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 5. The bad debts were written off on 30 November 2014. The figure consists of two invoices
of K4,875 each in respect of which payment was due on 1 June 2013 and 1 September
2013.

6. The general overheads are all standard rated supplies for VAT purposes.

7. The figure for operating expenses are inclusive of VAT at the standard rate and are made
up of:

Entertaining suppliers who are VAT registered 3,975

Telephone bills 6,000
Petrol 8,475

Unless stated otherwise, all the above figures are VAT exclusive.

Required:

Calculate the amount of VAT payable or repayable for the month of November 2014.
(11 marks)

(Total: 20 marks)

QUESTION FIVE

Daniza Ltd is a Zambian company that distributes health products throughout Zambia. The
company prepares its accounts every year on 31 December and is registered for value Added
Tax which is well accounted for in the company accounts.

The company had the following income tax values and original costs for its assets on 1 January
2014.

Original Cost Income Tax Value

Delivery Vans K K

Toyota Hilux 140,000 80,000

Isuzu kb 350 130,000 55,000
Nissan hard body 90,000 60,000
Mitsubishi canter (10Tonnes) 250,000 100,000
Ford Ranger 150,000 45,000

Motor Cars
Toyota crown 55,000 30,600
Toyota Vista 45,000 28,000
Toyota Caldina 38,000 22,000

The amounts of the original cost are all inclusive of Value Added Tax.

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During the year ended 31 December 2014, the company made the following purchases and
disposals:

Purchases Cost
K
Toyota Avanza 35,000
Fuso Truck 145,000

The figures for purchases are all VAT inclusive.

Disposals
Proceeds
K
Toyota Crown car 45,000
Toyota Hilux 65,000

The amounts of disposal proceeds are exclusive of VAT.

All motor cars are used 24% for private purposes and are personal to holder motor cars.

Required:

(a) Calculate the capital allowances of the company on its implements, plant and machinery
for the tax year 2014. (13 marks)

(b) BHT Ltd had the following transactions for the tax year 2014:

(1) The company sold a piece of farmland which it acquired forty years ago at a cost
of K20,000 to a Chinese national receiving proceeds of K150,000,being the market
value of the property.

(2) The company sold 50,000 shares to MBN Ltd at a market value of K2.50 per
share. The nominal value of the shares was K2.30.

Required:

(i) Calculate the total amount of property transfer tax payable by BHT Ltd for the tax
year 2014. (3 marks)

(ii) Explain two (2) similarities and two (2) differences between turnover tax and
property transfer tax. (4 marks)

(Total: 20 marks)
QUESTION SIX

Mary, Mable, and Martha are in partnership preparing partnership accounts each year to 31
December. Taxable profits for the year ended 31 December 2014 were K540,000.

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On 31 May, 2014 Martha retired from the partnership while Mary and Mable continued to trade.
A new partner Maureen was admitted on 31 August 2014.

The partnership agreement has been as follows:

Mary Mable Martha Maureen

Period up to 31.05.2014
Annual salaries (K) 24,000 30,000 28,000 -
Share of balance 30% 30% 40% -

Period from 1.06.2014 – 31.08.14

Annual salaries (K) 40,000 40,000 - -

Share of balance 60% 40% - -

Period from 1.09.14 to 31.12.14

Annual salaries (K) 36,000 36,000 - 42,000

Share of balance 25% 25% - 50%

Required:

(a) Calculate each partner’s income tax payable for the tax year 2014. (15 marks)

(b) Define a basis period and explain its importance to the business and list the normal and
commencement rules. (5marks)

(Total: 20 marks)

END OF PAPER

T5 SUGGESTED SOLUTIONS

SOLUTION ONE

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1.1 B
1.2 C
1.3 D
1.4 C
1.5 D
1.6 C
1.7 C
1.8 D
1.9 C
1.10 A

SOLUTION TWO

(a) TOM SAKALA

PERSONAL INCOME TAX COMPUTATION FOR THE TAX YEAR 2014
Earned Income K K

Salary (K264,000 x 8/12) 176,000

Education allowance 16,000
Fuel allowance (K1,200 x 8) 9,600
Housing allowance (K3,500 x 8) 28,000
Medical allowance K6,000 x 8/12) 4,000
Long service award 3,000
Bonus 9,000
245,600
Investment Income
Royalties (K25,500 x 100/85) 30,000
275,600
LESS: Allowable deductions
NAPSA restricted 3,060
Donation to charity 1,080
Subscriptions to directors 3,400
(7,540)
268,060
Less: Tax free pay (36,000)
Taxable income 232,060
Income tax
Next 9600 x 25% 2,400
Next 25200 x 30% 7,560
Excess 193260 x35% 69,041
Total tax liability 79,001
Less tax at source
PAYE (35,000)
WHT royalties (4,500)

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Initial income tax payable 39,501
Add tax on lump sum payments
Repatriation pay 45,000
Severance pay 30,000
75,000
Less exempt (35,000)
40,000
Tax at 10% 4,000
FINAL INCOME TAX PAYABLE 43,501

(b) Other than by retirement, employment may be terminated by:

1. Retrenchment or redundancy

2. Termination due to death

3. Dismissal or resignation

4. Expiry of employment contract

SOLUTION THREE

(a) MARCH PLC

COMPUTATION OF TAX ADJUSTED BUSINESS PROFIT FOR THE YEAR ENDED 31
DECEMBER 2014
K K
Profit before tax and capital allowances 860,000
Add disallowed expenses:
Depreciation 120,000
Loss on disposal of assets 13,500
Accommodation benefit (K145,000 x 30%) x 2 87,000
Motor car benefit (K20,000 x 2) 40,000
260,500
1,120,500
Less
Differently able person allowance (K1,000 x 2) 2,000
Management consultancy fees 17,000
Capital allowances on:
- Implements plant &machinery 219,000
- Industrial buildings 175,000
(413,000)

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 Tax adjusted business profits 707,500

WORKINGS

CAPITAL ALLOWANCES IMPLEMENTS PLANT AND MACHINERY

K K
Equipment
ITV b/f 68,500
Disposal proceeds(restricted to cost) 55,000
13,500
Motor Car No I
Wear and Tear allowance (20% x K40,000) 8,000

Motor Car No 2
Wear and tear allowance(20%x K40,000) 8,000

Motor Van
Wear and tear allowance (25% x K70,000) 17,500
47,000
Add: Other capital allowances 172,000
219,000
Industrial Buildings
K
Cost 820,000
Less: cost of land (120,000)
Initial qualifying cost 700,000

The 10% test 70,000

Since the administrative office cost is below the 10 % test it will be an industrial building
rather than a commercial building, therefore the capital allowances will be:
K
Initial allowance (10% of K700,000) 70,000
Investment allowance (10% of K700,000) 70,000
Wear and tear allowance (5% of K700,000) 35,000
Total industrial building 175,000

(b) MARCH PLC

COMPUTATION OF INCOME TAX PAYABLE FOR TAX YEAR 2014
K
Tax adjusted business profits 707,500
Gross management consultancy fees
(K17,000 x 100/85) 20,000
Total income 727,500

Company tax liability

(35%-5%=30%x K727,500) 258,600

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 Less:
Provisional tax (94,500)
WHT- on Management consultancy, fees
(K20,000 x 15%) (3,000)
Income tax payable 120,750

SOLUTION FOUR

(a) The tax point is a time when a supply is made.

For VAT purposes the tax point is important because:

1. It is used for the purpose of determining the tax period in which VAT on a supply is to
be accounted for,

2. In the case of a change in the VAT rate or scheme the tax point will be used to
determine which VAT rate or scheme applies to a particular supply.

(b) The basic tax point is determined with reference to the time when goods are delivered to
customer or collected by customer or the time when goods are made available or when
services are provided.

The basic tax point can be varied if a tax invoice or payment is made before the basic tax
point. In this case the earlier date is the tax point.

Where a tax invoice is issued within a period of fourteen days after the basic tax point the
tax point is the same as when the invoice is issued.

(c) The main difference between making exempt supplies and zero rated supplies are as
follows:

1. A trader who only makes exempt supplies cannot register for VAT while a trader
who makes only zero rated supplies can register for Value Added Tax.

2. When determining whether a trader should register for VAT by reference to the
level of turnover, the turnover of exempt supplies is not taken into account while
that of zero rated supplies is taken into account.

3. All the input vat that is attributed to exempt supplies cannot be recovered while
all the input vat that is attributable to zero rated supplies is recoverable.

(d) BRT LTD

COMPUTATION OF VAT PAYABLE FOR THE MONTH OF NOVEMBER 2014
K K
OUTPUT VAT
Sales ( K149,925- K14,992 - K18,750) x 16% 18,589

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 INPUT VAT
Purchases (K94,200 - K22,500 - K14,340) x16% 9,178
Bad debts (K4,875 x 16%) 780
General overheads (K15,900 x 16%) x 90% 2,290
Operating expenses - petrol
(K8,475x 4/29) 234
(12,482)
VAT payable 6,107

SOLUTION FIVE

(a) COMPUTATION OF CAPITAL ALLOWANCES FOR THE YEAR ENDED 31 DECEMBER 2014

Asset Capital allowance

K K
Toyota Hilux
Disposal proceeds 65,0000
ITV (60,345)
Balancing change 4655
Isuzu kb 350
Wear and tear allowance
(K130,000x25%x25/29) 28, 017
Nissan hard body
Wear and tear allowance
(K90,000 x 25%x25/29) 19,397
Mitsubishi canter
Wear and tear allowance
(K250,000x25%x25/29) 53,879
Ford ranger
Wear and tear allowance
(K150,000 x 25%x25/29) 32,328
Toyota Crown car
Income Tax Value b/f 33,000
Proceeds (45,000)
Balancing charge (12000)
Toyota Vista
Wear and tear allowance
(K45,000 x 20%) 9,000
Toyota Caldina
Wear and tear allowance
(K38,000 x 20%) 7,600
Toyota Avanza
Wear and tear allowance
(K35,000 x 20%) 7,000

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 Fuso Truck
Wear and tear allowance
(K145,000 x 25%x25/29) 31,250
Total capital allowances 171,816

(b) BHT plc computation of total property transfer tax payable

Transaction Computation PTT

K
1. (K150,000 x 10%) 15,000
2. 0
15,000

(c) SIMILARITIES AND DIFFERENCES BETWEEN TURNOVER TAX AND PROPERTY TRANSFER
TAX

Similarities

1. Both Property Transfer Tax and the turnover tax are direct taxes

2. Both are taxes on income

3. Both where introduced in order to increase the tax base on both the formal and
informal sector

Differences

1. PTT is tax on realised property which is immovable

2. Turnover tax is tax on sales or revenue that a business realises on daily basis.

3. PTT is calculated at 10% while turnover tax is calculated at 3%.

4. PTT has tax returns while turnover tax doesn’t have except for remittance card

SOLUTION SIX

(a) PARTNERS COMPUTATION OF INCOME TAX PAYABLE FOR TAX YEAR 2014

Mary Mable Martha Maureen

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 K K K K
Allocated profits 193,750 173,250 88,000 85,000
Less Tax free income (36,000) (36,000) (36,000) (36,000)
Taxable Income 157,750 137,250 52,000 49,000
Tax Liability
Next K9600 @ 25% 2,400 2,400 2,400 2,400
Next K25,200@ 30% 7,560 7,560 7,560 7,560
K122,120/101,880 x 35% 43,033 35,858 - -
K18,000/ K14,800@35% - - 6,020 4,970
Total Tax Liability/payable 52,993 45,818 15,980 14,930
WORKINGS
1. DIVISION OF PROFITS

Period Computation Profits

K
1.1.14 -31.5.14 5/12 x K540,000 225,000

1.6.14-31.8.14 3/12 x K540,000 135,000

1.9.14 -31.12.14 4/12 x K540,000 180,000
540,000

2. ALLOCATION OF PROFITS TO PARTNERS

Period Total Mary Mable Martha Maureen

K K K K K

Period 1
Salaries 34,167 10,000 12,500 11,667 -
Balance
(3:3:4) 190,833 57,250 57,250 76,333 -
Period 2
Salaries 20,000 10,000 10,000 - -
Balance
(6:4) 115,000 69,000 46,000 - -
Period 3
Salaries 38,000 12,000 12,000 - 14,000
Balance
(1:1:2) 142,000 35,500 35,500 - 71,000
Total 540,000 193,750 173,250 88,000 85,000

(b) Basis period

The basis period is a period that links the financial year of a business to a tax year, where
the financial year is not the same as the tax year.

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Importance

The basis period is important because it enables a business to know when to pay tax and
also what rates to use to calculate the tax due.

Normal rules

The normal rules are rules we use to determine which rates to use to calculate the tax
payable by the business.

The normal rules are of two types:

1. Those that relate to the current period and 2.those that relate to the previous period.
If the financial of a business falls between 1st April and 31st December in the same
year then we use the current year basis to tax the business.

If the financial year end of a business falls between 1st January and 31st March in the
same year then we use the preceding year basis to tax the business.

Commencement rules

These are rules applicable to a business when it has just started.in its inception a
business can trade for a period less than twelve months (12) short period or it can
trade for a period of more than 12 months

For the short period we apply the normal rules above.

For the long period we first divide the long period into two in such away that we start
with short period of less than twelve months and apply the normal rules to it,then the
remaining period will be exactly equal to twelve months and then we will apply the
normal rules.

END OF SUGGESTED SOLUTIONS

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