FACULTY OF BUSINESS

DEPARTMENT OF ACCOUNTING AND FINANCE

TAKE HOME TEST/ASSIGNMENT 1

FRONT PAGE

COURSE NO. ACC 305 DURATION: 18 HRS DATE: 17 JUNE 2020

TITLE OF PAPER: TAXATION PRINCIPLES

SUBJECT: ACCOUNTING TITLE OF EXAMINATION: Bachelor of Accountancy 3

INSTRUCTIONS:

1. This examination contains ONE (1) question.

2. Do NOT writ e outside the margins of your answer booklet.

3. Marks allocated for the question are as shown.

4. All workings and computations MUST be shown.

5. The use of Tippex correction fluid is NOT allowed.

6. Should you judge that there is lack of clarity in any part of the question, please make and record in writing (IN
YOUR ANSWER BOOKLET) any assumptions that you may consider appropriate for purposes of answering
such a question (reflecting your understanding of the question).
___________________________________________________________________
DO NOT OPEN THIS PAPER UNTIL YOU ARE TOLD TO DO SO BY THE INVIGILATOR.
NO. OF PAGES: 5
(Including this one)
Question

THIS IS A HYPOTHETICAL QUESTION

CC, a resident individual, works as an in-house tax specialist (runs the tax department) at ABC
(Pty) Ltd. He also runs his own side construction business, as well as being proprietor of a
successful farming enterprise. He is currently engaged in preparatory work for the submission
of his tax return for the current 2019/2020 tax year, based on all the following financial
information:

 Salary per month P35 000 (he started work on 1st August 2019); he received his
June 2020 salary only on 5th July 2020);
 As per the terms of his employment contract, CC is entitled to a monthly tax
compliance-based bonus of 10% of his monthly salary for every month worked,
which bonus is due and payable at the end of every tax year. However due to
logistical challenges, his employer only credited the requisite bonus into his bank
account on 11th September 2020.
 Interest received from Botswana Savings Bank ordinary savings account P11 000
 Interest received from Botswana Savings Bank certificates P8 500
 Interest received from ABSA Botswana savings account P6 587
 Interest received from Bank of Baroda savings account P2 650
 Interest received from resident building society ordinary savings account P7 800
 Interest received from resident building society subscription shares P12 520
 Income from construction business P1 256 258
 Income from farming business P889 587
 On 12th April 2020, the farming business made a donation of farm produce to the
COVID-19 Command Council, for on-ward distribution to deserving recipients.
The actual donation is inclusive of 100 000 fresh maize cobs whose current
market value is P10 per cob and fifty head of cattle whose current market value
is P5 000 per cow. Current market value is at the date of making the donation.

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  Income from Luxury apartments/rental units in Extension 9 (5 units, each @
P16 000 per month); three of the units were rented out for 9 months in the year
whilst the remainder were rented out for only 11 months). Two of the tenants
were only able to pay June 2020 rental on 14th July 2020.
 CC incurred monthly security and surveillance costs of P3 200 in respect of the
Luxury apartments. Further to the above, monthly costs of cleaning services
amounted to P2 540 whilst the annual costs of maintaining the entire property
amounted to P34 650. Annual Council rates amounted to P21 340.
 CC has six other rental units in ParkLane, known as Sentlhaga, whose current
market rental is P8 500 each. Tenants have occupied these for the entire tax
year. Due to the current COVID-19 Lockdown restrictions which have resulted
in loss of income for many businesses, four of the Sentlhaga apartment tenants
have only been able to pay half of the rental due and payable for the last three
months of the tax year. They have since entered into an agreement with CC to
pay the outstanding rental once the COVID-19 restrictions come to an effective
end in September 2020. One other tenant, who is generally risk averse, decided
to pay CC the full rental (with an agreed annual escalation of 10%) for the
forthcoming 20/21 tax year in order to secure his tenancy in Sentlhaga.

During the tax year, CC incurred the following expenses in respect of the farming business:

 Salaries paid to employees: P5 000 per month for each of the four employees;
two of these were employed on 1st January 2020 whilst the remainder were
employed for the whole tax year.
 Annual recurrent contribution of P45 000 paid to an approved pension fund in
respect of and for the benefit of all the above employees.
 Purchased computers at a cost of P65 000 and associated software for P13 450.
 Purchased new industrial building P345 000, this building was first put to use on
25th March 2020; improvements of P34 000 on this industrial building were
completed on 26th June 2020.

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  Entertainment of customers (during annual animal auction) cost P32 584
(however 15% of this amount was deemed to be excessive by the Commissioner
General of Taxes (CGOT)).
 Travelling and accommodation expenses of P22 146. The CGOT has determined
that one-tenth of this amount is in respect of a charge paid to the Botswana
Police Service by CC for a traffic violation whilst on a business trip. Of the above
total travelling and accommodation expenses, some amount of P6 560 relates to
tax year 18.

The construction business incurred the following expenses during the tax year:
 replacement of small implements and utensils P11 245
 training of five Batswana employees, duly approved by the CGOT P11 456 for each one
 bad debts written off P3 564
 annuity paid to dependents of former and deceased employee P22 250
 bought heavy civil engineering plant and machinery for P460 000
 bought new commercial building for P145 600
 completed construction of four identical units for the residential accommodation of
employees at a unit cost of P30 000. Eligible employees occupied all the four units by
the end of the tax year.
Required:

(a) Prepare, in good form, a schedule showing the taxable income of CC for the 2019/2020
tax year. SHOW ALL YOUR WORKINGS IN SEQUENTIAL ORDER and CROSS-
REFERENCE them to the main tax computation.

(36marks)
(b) Explain the non-inclusion of any of the above figures in your tax computation.
(2 marks)
(c) Compute the tax payable by CC for the tax year.

(2 marks)

TOTAL = 40 marks

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RATES OF TAX STARTING 2011/2012 (Section 59)

TABLE I
Taxable Income Tax (P)
(P)
0 -36 000 0
36 001 -72 000 0 + 5% of excess over 36 000
72 001 -108 000 1 800 + 12.5 of excess over 72 000
108 001 -144 000 6 300 + 18.75% of excess over 108 000
144 001 and above 13 050 + 25% of excess over 144 000

Table I applies to RESIDENT individuals

TABLE II
Taxable Income Tax (P)
(P)
0 – 72 000 5% of every Pula
72 001 – 108 000 3 600 + 12.5% of excess over 72 000
108 001 – 144 000 8 100+ 18.75% of excess over 108 000
Over 144 000 14 850 + 25% of excess over 144 000

Table II applies to NON-RESIDENT individuals, trusts falling under

Section 14(2) and estates of deceased persons

RATES OF CAPITAL ALLOWANCE

Nature of the allowance Allowance

Straight line annual allowances on plant or machinery at rates between
10% and 25% fixed by Commissioner General
1. Initial allowance for industrial building 25%
2. Annual allowance for industrial building 2.5%
3. Annual allowance for commercial building 2.5%
4. Heavy civil engineering plant or machinery used directly in 25%
construction
5. Aircraft and motorised road vehicles 25%
6. Other self-propelled portable plant or machinery used directly 25%
in manufacture or production
7. Other industrial (including farming) plant or machinery used 15%
directly in manufacture or production
8. Computers 25%
9. Computer software 100%
10. Other office machinery 10%
11. Other plant or machinery (including soft furnishings) 10%
12. Farming implements [Third Schedule, Part IV 1 (a)] 100%