QUESTION ONE

To calculate the taxable profits for the year 2023, we need to adjust the financial results provided
by Milungu Plc. The adjustments include adding back non-taxable items, deducting non-
deductible expenses, and making necessary adjustments for tax purposes. We start by subtracting
the total expenses from the gross trading profit and then add any other income earned during the
year, such as dividends received and interest income. Additionally, we subtract any losses
incurred from the disposal of assets. Next, we adjust for non-taxable items by removing
dividends received and discounts from the calculation. Then, we deduct non-deductible
expenses, such as NAPSA contributions, PAYE deductions, and penalties for late remittance of
NAPSA contributions and VAT returns.

Net Profit before Tax:

Net Profit before Tax= Gross Trading Profit − Expenses + Other Income − Loss on Disposal of
Assets

=1,990,780−506,490−214,270−149,050−22,860−94,780−58,720−50,640−2,750−357,260+221,3
40+3,650+136,800+40,630+5,830=942,210

Adjustments for Non-Taxable Items:

Dividends Received (Net) from Lukupa (Z) Ltd: Already taxed dividends, not taxable again.

Discount Received: Not taxable.

Bank Interest Received from Luombe (Z) Bank Ltd (Gross): Taxable.

Debenture Interest Received from Kateshi Plc (Net): Taxable.

Profit on Disposal of Motor Van: Taxable.

Adjusted Net Profit before Tax =407,030+136,800+40,630+5,830=590,290

Deduct Non-Deductible Expenses:

NAPSA Contributions for employees: Not deductible.

PAYE deductions for employees paid to ZRA: Not deductible.

Penalty for late remittance of NAPSA Contributions: Not deductible.

Penalty for late VAT Return: Not deductible.

Adjusted Net Profit before Tax=407,030+136,800+40,630+5,830−590−65,650−5,730−137,170=

381,150

Taxable Profits:

Taxable Profits=407,030+136,800+40,630+5,830−590−65,650−5,730−137,170=381,150

Tax Payable

Using the standard corporate tax rate for Zambia, which is 30% as of January 2022:

Tax Payable=Taxable Profits ∗ Corporate Tax Rate=376,150×0.30=112,845 K'000

Milungu Plc's taxable profits for the year 2023 amount to K376,150,000, and the tax payable on
these profits is K112,845,000.

QUESTION TWO

(a) (i) To calculate the total capital allowances claimable by Chombo Ltd, we need to determine
the capital allowances claimable on each asset. Capital allowances are calculated based on the
original cost of each asset and the period in use.

For assets held on 1 January 2023:

1. Toyota Mark II car: Original cost = K60,000, Period in use = 6 years

2. Manufacturing equipment: Original cost = K170,000, Period in use = 3 years

3. Mitsubishi Center: Original cost = K185,600, Period in use = 2 years

4. Toyota Hilux Van: Original cost = K69,600, Period in use = 2 years

For assets purchased during the charge year 2023:

1. Manufacturing plant: Original cost = K125,280

2. Range Rover car: Original cost = K80,000

3. Computers: Original cost = K29,000

The capital allowances for each asset:

For assets held on 1 January 2023:

1. Toyota Mark II car:

Annual allowance = (60,000 / 6) * 25% = K2,500

Capital allowance for 2023 = K2,500

2. Manufacturing equipment:

Annual allowance = (170,000 / 3) * 25% = K14,167

Capital allowance for 2023 = K14,167

3. Mitsubishi Center:

Annual allowance = (185,600 / 2) * 25% = K23,200

Capital allowance for 2023 = K23,200

4. Toyota Hilux Van:

Annual allowance = (69,600 / 2) * 25% = K8,700

Capital allowance for 2023 = K8,700

For assets purchased during the charge year 2023:

1. Manufacturing plant:

Annual allowance = (125,280 / 5) * 25% = K6,264

Capital allowance for 2023 = K6,264

2. Range Rover car:

Annual allowance = (80,000 / 5) * 25% = K4,000

Capital allowance for 2023 = K4,000

3. Computers:

Annual allowance = (29,000 / 3) * 25% = K2,417

Capital allowance for 2023 = K2,417

Summing up all the capital allowances to find the total capital allowances claimable by Chombo
Ltd.

For assets held on 1 January 2023:

- Toyota Mark II car: K2,500

- Manufacturing equipment: K14,167

- Mitsubishi Center: K23,200

- Toyota Hilux Van: K8,700

For assets purchased during the charge year 2023:

- Manufacturing plant: K6,264

- Range Rover car: K4,000

- Computers: K2,417

Total capital allowances claimable: K2,500 + K14,167 + K23,200 + K8,700 + K6,264 + K4,000
+ K2,417 = K61,248
ii) To calculate Income tax payable by Chombo Ltd for the charge year 2023, we consider the
following:

1. Deduct the total capital allowances claimed (K61,248) from the tax-adjusted profit (K392,906)
to find the taxable income.

2. Apply the applicable tax rate to the taxable income to determine the income tax payable.

3. Consider any provisional income tax already paid (K62,340).

Taxable income = Tax-adjusted profit - Total capital allowances

Taxable income = K392,906 - K61,248

Taxable income = K331,658

Income tax payable = Taxable income * Tax rate

Income tax payable = K331,658 * 30%

Income tax payable = K99,497.40

Considering any provisional income tax already paid:

Income tax payable = Income tax payable - Provisional income tax paid

Income tax payable = K99,497.40 - K62,340

Income tax payable = K37,157.40

So, the income tax payable by Chombo Ltd for the charge year 2023 is K37,157.40.