SECTION A CASE STUDIES: ATTEMPT ONE QUESTION (TOTAL 20 MARKS)

Question One

You are a tax manager for XYZ chartered accountants and one of the partners of your firm had a meeting with Bernadette and Norman Mwansa. Both have been obtaining tax consultancy services from your firm one of the clients who owns a small business called Rainbow ltd Company. Your firm manages the accounting affairs of Rainbow ltd Company. Extracts from the memorandum prepared by the partner following the meeting, and an email from him detailing the work he requires you to do are set out below.

Extracts from the memorandum prepared by your partner 6th January 2020

Bernadette Mwansa (a Zambian) is employed as a consultant with George Consulting and Sons. Bernadette is 36 years old and is married with 2 children, all of whom are school-going children. Bernadette is paid a basic annual salary of K240, 000 in 12 monthly instalments on the last day of each month. She is also entitled to the following allowances:

K Accommodation allowance (monthly) 3,000

Children's education allowance per child (annually) 2,000

Servant's allowance (monthly) 1,000

In addition to the allowances indicated above, Bernadette received a performance related bonus of K5, 000 and K10, 000 in February and October 2019 respectively. This was in recognition of her effort for the company's performance and meeting the set targets for third quarter 2018 and forth quarter of 2019 respectively.

On 5th December 2019, Bernadette received a dividend of K2, 000 and K4, 000 from Tamanda Ltd a Zambian manufacturing company and XYZ mining company. Both Tamanda and XYZ mining company are listed on Lusaka Stock Exchange. In both cases, the amounts shown are the actual amounts received by Bernadette.

Payments made by Bernadette in the current accounting period and tax year

K

National Pension Scheme Authority contribution 4,200

Pay As You Earn 20, 500

Annual subscription to professional 2,000

Children's school fees 5,000

Travelling costs from home to work 2,548

Bernadette Mwansa's husband, Norman Mwansa runs a small business called Rainbow Ltd. The business is operated in a small shop and does not involve any manufacturing. Norman sells goods acquired from manufactures. The net profit figure shown in the accounts for year ended 31st December 2019 was K450, 000 and the turnover K880, 000. The net profit figure was arrived at charging the following expenses:

Notes

1. Legal professional expenses K

Cost of obtaining new lease of business shop 3,000

Accountancy fees 2,500.

total 5,500

2. Repairs and Renewals

Cost of making alterations to comply with hygiene regulations 2,050

New shelving for the business shop 4,000

total 6,050

3. Sundry expenses

60 calendars bearing business name 12,000

Gift of food humper costing K105 each 3,150

Donation to a registered charity 1,500

Allowable expenses 3,860

total 20,510

4. General Expenses

Depreciation 4,000

Increase in General bad debt provision 2,000

Increase in Specific bad debt provision 1,000

Loan to former employee written off 2,100

Other allowable expenses 1,500

Total 10,600

5. Travelling expenses

General travelling including travellers' expenses 2,000

Expenses on Norma's car 3,000

total 5,000

Norma's business use of the car has been agreed with the Commissioner General as 75%. Capital allowances on business assets used by Norman wholly and exclusively for the purpose of the business for the current tax year amounted to K41, 065. All the income credited to Norman's profit and loss account included Royalties K2,000, Building society interest K2,500 Management consultancy fees K1000, Rent K2, 000 and Bank deposit interest K1, 500. All investment income indicated are gross amount.

Required:

Prepare the memorandum as requested in the email from your manager. The following marks are available:

(a) Explain the term employment and explain the tax treatment of contributions to approved pension funds (5 marks)

(b) Calculate the final amounts of income tax payable for 2019 charge year for

i. Bernadette Mwansa; and

ii. Norman Mwansa

Note: The final answer should be rounded off to the nearest K1 (15 marks)