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ACCA f6 taxation zimbabwe 2013 dec question

Taxation
(Zimbabwe)
Tuesday 3 December 2013

Time allowed
Reading and planning:
Writing:

15 minutes
3 hours

ALL FIVE questions are compulsory and MUST be attempted.
Tax rates and allowances are on pages 3–5.

Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants


Paper F6 (ZWE)

Fundamentals Level – Skills Module


This is a blank page.
The question paper begins on page 3.

2


SUPPLEMENTARY INSTRUCTIONS
1.
2.
3.

Calculations and workings need only be made to the nearest US$1, unless directed otherwise.
All apportionments should be made to the nearest month.
All workings should be shown.

TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used when answering the questions:
Rates – Individuals
Year ended 31 December 2012
Taxable
income band
US$
Up to 3 000
3 001 to 12 000
12 001 to 24 000
24 001 to 60 000
60 001 to 90 000
90 001 to 120 000
120 001 and over

Rate
of tax
%
0


20
25
30
35
40
45

Amount
within band
US$
3 000
9 000
12 000
36 000
30 000
30 000

Cumulative income
tax liability
US$
0
1 800
4 800
15 600
26 100
38 100

NB. The AIDS levy of 3% of income tax payable, after deducting credits, remains in place.
Allowable deductions year ended 31 December 2012
Pension fund contribution ceilings
2012
US$
(a) In relation to employers: in respect of each member
5 400
(b) In relation to employees: by each member of a pension fund
5 400
(c) In relation to each contributor to a retirement annuity fund or funds
2 700
(d) National Social Security (up to maximum of US$200)
3% of gross salary
Aggregate maximum contributions to all the above per employee per year
5 400

Credits year ended 31 December 2012
2012
US$
900*
900*
50%
50%

Disabled/blind person
Elderly person (55 years and over)
Medical aid society contributions
Medical expenses

* The amount is reduced proportionately if the period of assessment is less than a full tax year.
Deemed benefits year ended 31 December 2012
Motor vehicles
2012
US$
1 800
2 400
3 600
4 800

Engine capacity:
Up to 1500cc
1501 to 2000cc
2001 to 3000cc
3001 and above

3

[P.T.O.


Loans
The deemed benefit per annum is calculated at a rate of LIBOR +5% of the loan amount
advanced.
Value added tax (VAT)
Standard rate

15%
Capital allowances
%
25
25

Special initial allowance (SIA)
Accelerated wear and tear
Wear and tear:
Industrial buildings
Farm buildings
Commercial buildings

5
5
2·5

Motor vehicles
Movable assets in general

20
10

Tax rates
Year ended 31 December 2012
%
Companies
Income tax
Basic rate
AIDS levy

25
3

Individuals
Income tax
Income from trade or investment
AIDS levy

25
3

4


Capital gains tax
On marketable securities
20% of gain
Disposal of listed marketable securities acquired after 1 February 2009 1% of gross proceeds
Disposal of specified assets acquired prior to 1 February 2009
5% of gross proceeds
0%
On principal private residence where seller is over 55 years
On other immovable property acquired on or after 1 February 2009
20% of gain
Inflation allowance
2·5%
Capital gains withholding tax on sale proceeds
Immovable property
Marketable securities (Listed) acquired before 1 February 2009
Marketable securities (Unlisted)
Note: The withholding tax is not final on the seller. Actual liability is assessed
in terms of the Capital Gains Tax Act.

%
15
5
5

Withholding taxes
On dividends distributed by a Zimbabwean resident company to resident shareholders
other than companies and to non-resident shareholders:
By a company listed on the Zimbabwe Stock Exchange
By any other company
Informal traders
Foreign dividends

%

10
15
10
20

Non-residents’ tax
On interest
On certain fees and remittances
On royalties

%
nil
15
15

Residents’ tax on interest
From building societies
From other financial institutions (including discounted securities)

%
15
15

Elderly taxpayers (55 years and over)
The exemptions from income tax are as follows:

Rental income
Interest on deposits with a financial institution
Interest on discounted instruments
Income from the sale or disposal of marketable securities
Pension

Year ended 31 December 2012
US$
3 000
3 000
3 000
1 800
No limit

Income from the sale or disposal of a principal private residence is also exempted.

5

[P.T.O.


ALL FIVE questions are compulsory and MUST be attempted
1

Moira Demo works for the Ministry of Health and Child Welfare as an eye surgeon and optician based at Midlands
provincial hospital in Gweru. She dedicates most of her free time to her private practice, as well as writing books and
articles for the Zimbabwe Medical Journal. Moira is also part of the medical team for the local NGO, Sight Restoration,
which is involved in cataract surgery for the disadvantaged members of society in remote rural areas.
Moira’s private practice is located in Gweru and has a staff complement of six employees who all work full time. Moira
only attends to the patients at her private practice strictly by appointment and her patient base has been steadily
growing due to her experience and dedication.
In terms of her service contract with Sight Restoration, Moira is required to participate in all the cataract operations
scheduled for the year. Her service contract is for a year, subject to renewal as and when donor support is available.
Sight Restoration’s field staff, of which Moira is one, are paid a predetermined monthly salary plus an attendance
allowance which is paid only after each cataract operation. The field staff are also entitled to a one-off representation
allowance for participating in scheduled seminars.
Moira Demo’s earnings and deductions for the year ended 31 December 2012 were:
Notes
From Ministry of Health and Child Welfare
Salary
On call allowance
Accommodation allowance
Transport allowance
Bonus
Representation allowance
Cash in lieu of leave
Employee pension contributions
Loan repayment
Employee subscriptions to the Medical Professions Association
Employee contributions to the Health Professions Medical Aid Society
Life policy stop order
PAYE
From her private practice
Salary
School fees benefit
Home security benefit
Gym subscriptions benefit
South African trip
Utility bills benefit
Retirement annuity fund (RAF) contributions
PAYE
From Sight Restoration
Salary
Attendance allowance
Representation allowance
PAYE

(1)

(2)

US$
30
12
6
3
2
1
2
(2
(3
(2
(8
(1
(14

000
000
000
000
500
200
500
250)
500)
000)
000)
000)
000)

60
15
10
4
6
5
(3

000
000
000
000
000
000
000)
0

16
20
7
(19

000
000
000
930)

(3)

Notes:
(1) This amount is a part repayment of the interest free personal loan of US$12 000 advanced to Moira on 30 June
2012. She used half the loan amount towards the tuition expenses for her MBA studies and the other half to
sink a borehole at her house. The LIBOR for the year ended 31 December 2012 was constant at 2·5%.
(2) This amount was fully expended towards the travelling costs for Moira and her minor son for his medical
treatment in South Africa. The actual medical treatment expenses were fully covered by the Health Professions
Medical Aid Society (HPMAS) of which Moira is a member. However, HPMAS disallowed a total of US$4 000
from Moira’s claim for prescription drugs acquired during the year ended 31 December 2012, as being above
the stipulated limit.
6


(3) No employees tax (PAYE) or corporate income tax was paid in respect of the amounts paid to the employees of
the private practice (including Moira) or the profits from the practice. This was because in Moira’s opinion her
operations were ‘private’ and as such not subject to tax and also because she believed that she was already
contributing her fair tax share from her other two employers.
Additional information
For her private practice work, Moira makes use of a fully expensed motor vehicle, with an engine capacity of 3000cc.
Moira is a NSSA registered member and for the year ended 31 December 2012, the Ministry of Health and Child
Welfare duly deducted her monthly contributions from her earnings in terms of the mandatory requirements.
Required:
(a) (i)

State the ZIMRA requirements which have been breached by Moira Demo based on the information
given in note (3).
(3 marks)

(ii) Explain the possible consequences of breaching the ZIMRA requirements as identified in your answer to
(i) above.
(2 marks)
(b) Assuming that Moira Demo’s private practice had been fully tax compliant in the year ended 31 December
2012, identify TWO tax planning techniques which Moira Demo could have applied in order to minimise or
defer the tax due in respect of her private practice.
(2 marks)
(c) Compare and contrast the tax treatment of the two representation allowances received by Moira Demo for
the year ended 31 December 2012.
(2 marks)
(d) (i)

Calculate Moira Demo’s NSSA contributions for the year ended 31 December 2012.

(1 mark)

(ii) Calculate the PAYE (employees tax) which should have been deducted from the salary and benefits
Moira Demo received from her private practice for the year ended 31 December 2012.
Note: Indicate any amounts which are not taxable or deductible by the use of zero (0).

(6 marks)

(iii) Calculate the taxable income of and income tax payable by Moira Demo for the year ended 31 December
2012.
Note: Indicate any amounts which are not taxable or not deductible by the use of zero (0). (14 marks)
(30 marks)

7

[P.T.O.


2

Absolute Milling Company (Private) Limited (AMC) produces mealie-meal, flour and various soup powders. At
1 January 2012, AMC owned two milling plants in Harare (Harare No. 1 and Harare No. 2) and several milling plants
in other major towns in Zimbabwe. Each milling plant comprises the milling building, the milling plant and equipment
and an adjacent warehouse, all of which were owned by AMC.
AMC has been having financial difficulties and on 1 February 2012, engaged the services of a business consultant
to recommend a survival plan for the company. Staff morale was very low when the business consultant was engaged
because their salaries were six months in arrears.
The business consultant’s recommendations were agreed and implemented in the year ended 31 December 2012 as
follows:
(1) The milling buildings, plant and equipment and warehouses relating to the milling plants in all the major towns
were transferred to their employees at market value, to be operated by the employees as independent business
ventures. The stock in the warehouses at the respective milling plants was also transferred to these new business
ventures at cost.
(2) The Harare No. 1 milling plant was disposed of, together with all its related fixed assets, in order to fund AMC’s
future business operations and to pay off part of the arrears of salary due to the employees. The employees at
this milling plant were all reassigned elsewhere. The stock at the Harare No. 1 milling plant warehouse, valued
at cost, was given to the employees as final settlement of their arrears of salary.
Both the disposal of the Harare No. 1 milling plant assets and the transfer of the town milling plant assets to their
employees were made on 30 March 2012.
Details of the fixed asset disposals and transfers are:
Asset
Town milling plant and equipment
Town milling buildings
Town milling warehouses
Harare No. 1 milling plant and equipment
Harare No. 1 milling building
Harare No. 1 warehouse

Date acquired
2000
2000
2000
2005
2005
2005

Cost (US$)
100 000
300 000
200 000
180 000
250 000
170 000
––––––––––
1 200 000
––––––––––
––––––––––

Market value (US$)
160 000
400 000
300 000
230 000
430 000
320 000
––––––––––
1 840 000
––––––––––
––––––––––

Cost (US$)
300 000
400 000
––––––––
700 000
––––––––
––––––––

Selling value (US$)
375 000
500 000
––––––––
875 000
––––––––
––––––––

Details of the stock transferred are:
Location
Town warehouses
Harare No. 1 warehouse

AMC’s statement of profit or loss for the year ended 31 December 2012 is as follows:
Note
1
2

Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Finance costs

3
4
5
6
7

Profit before tax
Income tax expense

8

Profit for the period

8

US$
2 800 000
(1 600 000)
––––––––––
1 200 000
370 000
(295 000)
(440 000)
(180 000)
(95 000)
––––––––––
560 000
(50 000)
––––––––––
510 000
––––––––––
––––––––––


Notes:
1

This amount represents AMC’s ordinary sales for the year.

2

Included in the cost of sales is the total value of the stock at cost transferred to the employees (in accordance
with the business consultant’s recommendations) on 30 March 2012. No other adjustments were recorded
regarding this stock transfer.

3

Other income comprises:
US$
260 000
110 000
––––––––
370 000
––––––––
––––––––

Profit on the sale of assets
Hire of milling plants

4

Distribution costs comprise:
US$
170 000
7 000
118 000
––––––––
295 000
––––––––
––––––––

Motor vehicle expenses
Vehicle licence penalty
Replacement of a damaged vehicle trailer

5

Administrative expenses comprise:
US$
233 750
45 000
47 250
30 000
40 000
44 000
––––––––
440 000
––––––––
––––––––

Staff costs
PAYE on arrears of salaries
PAYE penalty on arrears of salaries
Software upgrade
Allowance for receivables
Depreciation

6

Other expenses comprise:
US$
Cost of asset disposals:
Harare No. 1 milling plant and equipment
Harare No. 1 milling building
Harare No. 1 warehouse
General entertainment
Management staff share scheme (as detailed below)

23 000
43 000
32 000
42 000
40 000
––––––––
180 000
––––––––
––––––––

The share scheme was introduced three years ago in order to retain critical management staff. The expense
relates to the cost of the company shares awarded to management staff on attaining five years of continuous
service with AMC.
7

Finance costs relate to:
Trade payables
Long-term borrowings (to fund an extension to the Harare No. 2 warehouse)

9

US$
35 000
60 000
–––––––
95 000
–––––––
–––––––

[P.T.O.


8

Income tax expense:
This amount relates to the total provisional corporate tax payments made by AMC in respect of the year ended
31 December 2012.
In their 2012 budget, AMC had projected a taxable income for the year of US$480 000 before taking into
account the following prior year assessed losses:
US$
20 000
15 000
10 000
–––––––
45 000
–––––––
–––––––

2009
2010
2011

Additional information:
As at 1 January 2012 AMC’s fixed assets were all fully depreciated, except for the following:
Office building
Commercial vehicles

Date acquired
2000
2010

Cost/valuation (US$)
200 000
150 000

AMC’s policy on fixed assets has always been to claim the maximum allowances possible in any given year.
Required:
(a) Outline the tax consequences for Absolute Milling Company (Private) Ltd (AMC) as a result of the transfer of
the fixed assets and stock to the employees on 30 March 2012, stating when any taxes due should be paid.
(6 marks)
(b) Calculate the provisional corporate tax underpaid by AMC for the year ended 31 December 2012, based on
the information in note 8.
(2 marks)
(c) Calculate the capital gains tax payable by AMC for the year ended 31 December 2012.

(3 marks)

(d) Calculate the taxable income of and corporate tax payable by AMC for the year ended 31 December 2012.
Note: Your computation should list all of the items referred to in notes 1 to 7, indicating by the use of zero
(0) any items which do not require adjustment.
(14 marks)
(25 marks)

10


3

Billy Wells works as a marketing manager in Harare. Over the past seven years, Billy has tried to save enough money
to develop his half acre residential plot in Rolf Valley, Harare without much success. All he has managed to do is to
erect a concrete wall around the property and to have the plans for both the main house and the outbuilding approved.
Convinced that he will not be able to build his dream house in Rolf Valley, Billy decided to dispose of his residential
plot and buy a house in Parklands. He also decided to dispose of his entire investment in shares to help fund the
acquisition of the Parklands house. Billy has never owned any other residential property apart from the Rolf Valley
plot and he has always lived in rented accommodation.
Billy sold both the Rolf Valley property and his share investments on 5 May 2012. On 1 July 2012, he signed the
agreement of sale for the acquisition of the Parklands house for US$130 000.
Details of the Rolf Valley property and the share investments are as follows:
Rolf Valley plot
Rolf Valley improvement
Quoted shares
Unquoted shares

Date acquired/constructed
25 April 2005
20 January 2008
20 April 2010
1 March 2009

Original cost/valuation(US$)
5 000
7 000
10 000
20 000

The Rolf Valley property was sold at a total price of US$100 000 while the quoted and unquoted shares were sold
for US$15 000 and US$30 000 respectively. Billy incurred disposal expenses of 5% on both the immovable property
and the marketable securities.
Billy applied for a rollover relief on the disposal of the Rolf Valley property on the basis that it was the only residential
property which he owned and hence his principal private residence, but ZIMRA disallowed the rollover relief.
Required:
(a) Define a principal private residence for capital gains tax purposes, clearly identifying the conditions
necessary for a property to qualify as such.
(5 marks)
(b) Briefly comment on the probable reasons for ZIMRA’s disallowance of the rollover relief claim by Billy Wells.
(3 marks)
(c) Calculate the withholding tax which will be deducted on Billy Wells’ disposal of the Rolf Valley plot and the
marketable securities, and state whether or not this will be the final tax.
(3 marks)
(d) Calculate the capital gains tax payable by or refundable to Billy Wells in respect of his sale of the unquoted
shares.
(4 marks)
(15 marks)

11

[P.T.O.


4

Tom Veld acquired a farm in Mash East province on 4 October 2010 for the purposes of venturing into dairy farming.
Tom is a qualified farmer with a masters degree in animal husbandry and had practised farming in Australia for ten
years before relocating to Zimbabwe.
Tom spent the first year putting up infrastructure at his farm and preparing the pastures. He incurred the following
costs during the years ended 31 December 2010 and 31 December 2011:

Temporary farm roads
Farm and pasture fencing
Clearing and land preparation
Dip tanks
Dam construction
Wages
Sinking of boreholes and wells
Borehole equipment
Staff houses (6 units)

2010
US$
8 000
25 000



10 000
24 000
14 000

–––––––
81 000
–––––––
–––––––

2011
US$


15 000
18 000
30 000
28 000


90 000
––––––––
181 000
––––––––
––––––––

Tom acquired the following cattle on 15 September 2011:
40 dairy cows
25 heifers
30 steers
2 bulls

US$
48 000
10 000
9 000
2 000
–––––––
69 000
–––––––
–––––––

During the year ended 31 December 2012, a total of 20 calves were born on the farm and 15 steers were sold. The
approved fixed standard value is US$380. Calves are valued at US$200 each, while the dairy cows and the bulls are
valued at the purchase price.
Commercial production of milk and sales commenced on 1 February 2012. Tom recorded a total farm revenue of
US$460 000 for the year ended 31 December 2012. The related farm expenses were:
Wages
Animal feed supplement
Contour ridges
Other farm running expenses

US$
45 000
26 000
5 000
80 000
––––––––
156 000
––––––––
––––––––

Additional information
Tom’s workforce is mostly comprised of casual workers who are paid US$6 per day in line with the industry rates.
His permanent workers are paid monthly wages ranging between US$200 and US$250.

12


Required:
(a) State, with reasons, the taxes for which Tom Veld is obliged to register with ZIMRA and the tax obligation in
(3 marks)
respect of which he does not need to register.
(b) State whether, and if so why, Tom Veld can claim relief for the expenditure incurred prior to 1 February 2012.
(1 mark)
(c) (i)

List the special deductions available to Tom Veld for the year ended 31 December 2012.

(ii) Calculate the value of Tom Veld’s closing livestock for the year ended 31 December 2012.

(3 marks)
(2 marks)

(iii) Calculate Tom Veld’s minimum taxable income and tax payable for the year ended 31 December 2012.
(6 marks)
(15 marks)

13

[P.T.O.


5

Rhino Printers Limited (RPL) is in the business of printing exercise books and note books. The books are sold directly
to other wholesalers by RPL and to the public and other retailers through RPL’s wholly owned subsidiary,
Rhino Booksellers (Private) Limited (RB). Both RPL and RB are registered operators for value added tax (VAT).
For the past two years, RB has been facing a lot of competition from unregistered book vendors. Consequently RB’s
monthly turnover has been on a consistent downward trend. The following is an extract from RB’s monthly sales
records for the year ended 31 December 2012:

January
February
March
April
May
June
July
August
September
October
November
December

Sales (inclusive of VAT)
(US$)
30 000
25 000
21 000
13 000
10 000
4 000
3 000
3 000
2 000
2 000
2 000
3 000
––––––––
118 000
––––––––
––––––––

RB’s operational expenses for the year ended 31 December 2012 (inclusive of VAT where applicable) were:
Repairs and maintenance
Staff costs
Rental expenses
Loan establishment fee
Other general expenses

US$
23 000
45 000
36 000
4 000
18 000
––––––––
126 000
––––––––
––––––––

Additional information:
1.

RB sells the books at a mark up of 30%.

2.

During the year ended 31 December 2012, RPL had transferred stock to RB with a value of US$200 000,
including VAT.

3.

RB’s closing stock at 31 December 2012 had a VAT exclusive cost of US$121 070. RB held no opening stock
at 1 January 2012.

4.

RB’s landlord is not registered for VAT.

RB was only able to meet its operational expenses during the six months July to December 2012 due to the overdraft
facility offered by the bank to distressed companies. In order to limit their exposure to the bank, RPL has taken over
RB’s debt and passed a resolution to wind up RB’s operations on 10 January 2013.

14


Required:
(a) Explain Rhino Printers Limited’s (RPL’s) value added tax (VAT) obligations in respect of the stock transferred
to Rhino Booksellers (Private) Limited (RB) during the year ended 31 December 2012 and determine the
amount of VAT due, if any.
(2 marks)
(b) Calculate the VAT to be paid by or refunded to RB for the year ended 31 December 2012.
(c) (i)

(5 marks)

State the circumstances in which a registered operator can deregister for VAT purposes, including when
and how ZIMRA should be notified.
(3 marks)

(ii) Determine the earliest date when RB can deregister for VAT.

(2 marks)

(iii) Explain RB’s VAT obligations on deregistration and assuming that RB carries out no further transactions
after 31 December 2012, calculate the VAT to be accounted for to ZIMRA.
(3 marks)
(15 marks)

End of Question Paper

15



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