Kosam Bwende is a successful retail proprietor in Solwezi district. He prepares his business accounts to 31st December of each year. His net profit for the year ended 31 December, 2019 was K 640,000. This was after charging and crediting the following items: 

• Depreciation of K60,000 

• Wages and salaries K1,600,000 (note 1) 

• Travelling and entertainment K102,000. (note 2) 

• Repairs and renewals K15,000 (note 3) 

• Professional fees K106, 000 (note 4) 

• Motor expenses K300,000 (note 5) 

• Other expenses K1,700,000 (note 6)

Note 1 – Wages and Salaries

Included in the figure of K1,600,000, is the annual salary of K400,000 paid to Mary, Mr Bwende’s wife. Mary works as a clerical officer. Other clerical officers doing the same job as Mary’s, are each paid K280,000 per annum.

Note 2 – Travelling and Entertainment

The figure for travelling and entertainment is made up of the following items;

1. Entertaining special foreign suppliers K12,600 

2. Employees new year party K12,400 

3. Bwende’s business travelling K70,000 

4. Gifts of food and drink to local customers K7,000

Note 3 – Repairs and Renewals

Consist of the following items;

1. Replacement of hard drive on shop’s computer K5,000. 

2. Industrial computer printer K10,000

Note 4 – Professional fees

1. Accounting and Auditing K20,000 

2. Debt collection K55,000 

3. Personal Financial planning advice K10,000 

4. Architect’s fees for shop’s expansion K21,000

Note 5 – Motor Expenses

There is an agreement between Bwende and the Commissioner General that 25% of the mileage done on motor vehicles relate to private journeys

Note 6 – Other expenses

1. Donation to a political party K 2,100 

2. Subscription to chamber of commence K 4,900

3. Employee staff workshop K 2,000 

4. Proprietor’s golf club subscription K 15,000 

5. Allowable expenses balance

Additional notes for items not included in the accounts and which did not affect the given profit of K640,000.

Note 7 – Goods for own use

During the year ended 31 December 2019, Bwende took goods out of the retail shop for his personal use. The goods cost K15,000 and had a selling price of K 24,000. Bwende only recorded these at cost in the business accounts.

Note 8 – Use of Private telephone

Bwende uses his private telephone to make business calls. The total cost of the private telephone was K15,000 for the year 2019. Twenty five percent (25%) of the telephone cost relate to business calls. No record of the private telephone was made in the books of accounts thus the telephone costs did not in any way affect the profit for the year of K640,000.

Note 9 – CAPITAL ASSETS
The income tax values for implements, plant and machinery as at 1 January 2019 were as follows

Income tax values:

Tata truck used for deliveries bought 1 march 2017 K50,000

Toyota Noah used both for business and personal by proprietor K45,000

Office computer (HP 2010 MODEL) K45,000

Office furniture (shonga steel) bought 1 September 2016 K7,500

The purchase costs of the above capital assets were; Tata truck K100,000, Toyota Noah K54,000, office computer K60,000 and Office furniture K30,000

Transactions involving implements, plant and machinery were as follows:

DATE TRANSCTION COST/(PROCEEDS)

I January 2019 Bought proprietor’s Toyota Hilux K250,000
1 June 2019 Sold Tata truck for ( K120,000)

30 June 2019 Bought new Office furniture for K60,000

1 July 2019 Sold old Office furniture (shonga steel) ( K30,000)

1 December 2019 Bought new Equipment (processing) K 25,000.

NB Bwende uses both the Toyota noah and the Toyota hilux for business and private purposes in the ratio 75% business and 25% private. Bwende paid provisional income tax totaling K200,000 on the appropriate due dates for 2019.

REQUIRED

(a) Calculate the capital allowances for the charge year 2019.

(b) Calculate Bwende’s taxable business profit for charge year 2019, giving reason(s) for treatment of each item.(a good weight of marks allocated for explanation)

(c) Calculate Bwende’s income tax payable for charge year 2019 derived from the taxation laws of country Zambia.

Answer rating: 100% (QA)

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