College

**QUESTION 2**

Zhola Pvt Ltd is a company operating as a manufacturer in Zimbabwe. Below is information regarding its business activities for the assessment year ending 31 December 2022:

**Income Statement:**

- **Sales:** $3,300,000
- **Cost of Sales:** $(900,000)
- **Gross Profit:** $2,400,000

**Less Expenses:**

- Bad and Doubtful Debts: $120,000
- Research and Experiments: $190,000
- Motor Vehicle Repairs and Maintenance: $150,000
- Depreciation: $110,000
- Travelling Expenses: $60,000
- Import Duty on New Machinery: $20,000
- Audit Fees: $12,000
- Income Tax Advice: $16,000
- ZESA Connection Fees: $28,000
- Interest on Loan to Construct Factory: $52,000
- Donations: $300,000
- General Expenses: $520,000
- Proposed Dividends: $90,000

**Total Expenses:** $(1,668,000)

**Operating Profit:** $732,000

**Additional Information:**

- **Bad and Doubtful Debts:**
- Bad Debts Proven Irrecoverable: $90,000
- Provision for Doubtful Debts (10% of Debtors): $30,000

- **Research and Experiments:**
- 50% related to equipment acquired at the beginning of the year.

- **Travelling Expenses:**
- Business Trip: $40,000
- Private Expenses for the Managing Director's Wife: $20,000

- **Donations Include:**
- Manufacturers Association: $60,000
- Charitable: $40,000
- University of Zimbabwe: $200,000

- **General Expenses:**
- Telephone Expenses: $80,000
- Fire Insurance: $20,000
- Fuel and Electricity: $420,000

**Company Assets and Their Income Tax Values (ITVs) as of 2022:**

- **Cost** | **ITV**
- Motor Vehicles (Trucks): $200,000 | $100,000
- Furniture & Fittings: $100,000 | $40,000
- Tractors: $120,000 | $60,000
- Plant & Machinery: $240,000 | $130,000
- Factory Building: $1,200,000 | $900,000

The company claimed SIA on trucks and tractors during the year ended 31 December 2021. No SIA was claimed on other assets in previous years.

**Additions to Assets During the Year:**

- Machinery: $200,000
- 2 Tonne Truck (Second Hand): $20,000
- New Office Furniture: $40,000
- Extension to Factory Building: $12,000

**Required:**

A. Compute the company's minimum taxable income or maximum assessed loss for the year ended 31 December 2022, including any tax payable if applicable. (25 Marks)

Answer :

The company's minimum taxable income for the year ended 31 December 2022 is $1,191,200.

What the income?

Calculate Gross Income:

Sales: $3,300,000

Cost of Sales: ($900,000)

Gross Profit: $2,400,000

Deduct Allowable Expenses:

a. Bad and Doubtful Debts:

Irrecoverable Bad Debts: ($90,000)

Provision for Doubtful Debts (10% of debtors): ($30,000)

Total Bad and Doubtful Debts: ($120,000)

b. Research and Experiments:

50% of $190,000 (related to equipment): ($95,000)

Net Research and Experiments Expense: $95,000

c. Motor Vehicle Repairs and Maintenance: ($150,000)

d. Depreciation:

Machinery (new additions): $200,000 / 5 years = $40,000

Factory Building (extension): $12,000 / 30 years = $400

Existing assets depreciation (calculate separately):

Motor Vehicles (Trucks): ($200,000 - $100,000) / 5 years = $20,000

Furniture & Fittings: ($100,000 - $40,000) / 5 years = $12,000

Tractors: ($120,000 - $60,000) / 5 years = $12,000

Plant & Machinery: ($240,000 - $130,000) / 5 years = $22,000

Factory Building: ($1,200,000 - $900,000) / 30 years = $10,000

Total Depreciation: $40,000 + $400 + ($20,000 + $12,000 + $12,000 + $22,000 + $10,000) = $116,400

e. Travelling Expenses (only business portion): ($40,000)

f. Import Duty on New Machinery: ($20,000)

g. Audit Fees: ($12,000)

h. Income Tax Advice: ($16,000)

i. Zesa Connection Fees: ($28,000)

j. Interest on Loan to Construct Factory: ($52,000)

k. Donations (only charitable portion):

Charitable: ($40,000)

Net Donations Expense: $40,000

l. General Expenses:

Telephone Expenses: ($80,000)

Fire Insurance: ($20,000)

Fuels and Electricity: ($420,000)

Net General Expenses: $520,000

m. Proposed Dividends: ($90,000)

Calculate Operating Profit:

Gross Profit: $2,400,000

Less: Total Expenses: ($120,000 + $95,000 + $150,000 + $116,400 + $40,000 + $20,000 + $12,000 + $16,000 + $28,000 + $52,000 + $40,000 + $520,000 + $90,000) = ($1,269,400)

Operating Profit: $2,400,000 - $1,269,400 = $1,130,600

Asset Additions During the Year:

Machinery: $200,000

2 Tonne Truck (second hand): $20,000

New Office Furniture: $40,000

Extension to Factory Building: $12,000

Special Initial Allowance (SIA):

Since SIA was claimed on trucks and tractors in the previous year, we need to calculate SIA only on the new assets added during the year.

SIA on Machinery: $200,000 * 0.50 = $100,000

SIA on 2 Tonne Truck (second hand): $20,000 * 0.25 = $5,000

SIA on New Office Furniture: $40,000 * 0.50 = $20,000

SIA on Extension to Factory Building: $12,000 * 0.10 = $1,200

Total SIA: $100,000 + $5,000 + $20,000 + $1,200 = $126,200

Calculate Taxable Income:

Operating Profit: $1,130,600

Add: SIA on new assets: $126,200

Taxable Income before Capital Allowance: $1,256,800

Capital Allowance (Depreciation Allowance):

For each asset category, calculate the capital allowance:

Machinery: $200,000 * 0.25 = $50,000

2 Tonne Truck (second hand): $20,000 * 0.25 = $5,000

New Office Furniture: $40,000 * 0.25 = $10,000

Extension to Factory Building: $12,000 * 0.05 = $600

Total Capital Allowance: $50,000 + $5,000 + $10,000 + $600 = $65,600

Taxable Income:

Taxable Income before Capital Allowance: $1,256,800

Less: Capital Allowance: ($65,600)

Taxable Income: $1,191,200

Learn more about income

https://brainly.com/question/30157678

#SPJ1

Other Questions