Answers

ACCA Certified Accounting Technician Examination – Paper T9(LSO) December 2006 Answers
Preparing Taxation Computations (Lesotho) and Marking Scheme

Marks
1 (a) TAXABLE INCOME LIRA MAFURA FOR THE YEAR ENDED 31 MARCH 2006
M M
Gross income:
Employment income
Salary 80,000 1/
2
Bonus 30,000 1/
2
Leave pay 5,500 115,500 1/
2
––––––––
Business income
Consultancy fees – Lesotho Government (860,000 × 100/90) 955,556 1
Consultancy fees – World Bank 520,000 1/
2
Consultancy fees – Other donors (90,000 × 100/90) 100,000 1
Consultancy fees – Lesotho State Contractors (500,000 × 100/90) 555,556 1
Bad debts recovered 3,000 2,134,112 1
––––––––
Property income
Dividends from resident company 0 1
Interest from savings 0 0 1
–––––––– ––––––––––
Gross income 2,249,612
Less allowable expenses
Income tax paid 0 1
Fuel, repairs and maintenance 60,000 1/
2
Office rent 72,000 1/
2
Advertising 5,000 1/
2
Office expenses 18,000 1/
2
Car purchase 0 1
Staff salaries 120,000 1/
2
Training courses for staff (12·5%) 50,000 2
Bank interest (25,600 – 21,368) 4,232 1
Mortgage interest 0 1
Telephone, light and heat 14,800 1/
2
Bad debts 8,000 1
Annuity to wife of late employee 16,000 1
Entertainment expenses (50%) 35,000 2
Membership – Trade association 4,000 1
Membership – Golf club 0 1
Provision for bad debts 0 1
Depreciation 0 407,032 1
–––––––– –––––––––– ––
Taxable income 1,842,580 25
–––––––––– ––

(b) Treatment of interest from savings held in a nominated account:

– The first M500 of interest derived from a single savings account by a resident individual is exempt from
income tax. 2
– The exemption is only available in respect of savings accounts with a registered financial institution
resident in Lesotho or the Lesotho resident branch of a non-resident financial institution. 2
– The exemption is only available in respect of a single savings account (the nominated account). It is
not possible to aggregate the interest earned on several accounts to reach the M500 limit. 1
– Interest in excess of M500 is subject to withholding tax at the rate of 10%, as the final tax. 1
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 Marks
2 IOU Manufacturing Company Ltd
Corporation tax payable for the year ended 31 March 2006
M M
Net profit as per accounts 197,000
Add back disallowed expenses:
Insurance claim 3,000 2
Erection of fire escape 1,300 1
New doorway 620 1
Membership of golf club 4,000 1
Donation 1,000 1
Customer entertainment (50%) 1,100 2
Rent of directors’ houses 10,000 1
Legal charges (safety requirements) 2,000 2
Corporation tax appeal 1,000 1
Transfer to capital reserve 20,000 2
Depreciation of assets 16,000 60,020 1
––––––– ––––––––
Adjusted taxable income 257,020
––––––––
Corporation tax payable:
M257,020 x 15% 38,553 1
––––––––

No adjustment for the following items (to be included as zero (0) by candidates in computation) at 1/2 mark each:
Machinery repairs
Painting of premises
Association of Manufacturing Companies subscription
Advertising
Trade journals
Staff travel
Motor expenses
Rent of office premises
Royalties
Legal charges (debt collection) (6 x 1/2) ––
5
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3 (a) Mafeteng (Pty) Limited

Industrial buildings (5%)

M
1 April 2001 Cost 190,000
Depreciation allowance (9,500) 1
––––––––
1 April 2002 Tax written down value 180,500
Depreciation allowance (9,025) 1
––––––––
171,475
31 March 2003 Additions 42,000 1
––––––––
1 April 2003 Tax written down value 213,475
Depreciation allowance (10,674) 1
––––––––
1 April 2004 Tax written down value 202,801
Depreciation allowance (10,140) 1
––––––––
1 April 2005 Tax written down value 192,661
31 March 2006 Disposal proceeds 290,000
––––––––
Gain on disposal 97,339 1
–––––––– ––
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 Marks
(b) Equipment (20%)
1 April 2001 Cost 80,000
Depreciation allowance (16,000) 1
––––––––
1 April 2002 Tax written down value 64,000
Depreciation allowance (12,800) 1
––––––––
1 April 2003 Tax written down value 51,200
Addition 56,000 1
––––––––
107,200
Depreciation allowance (21,440) 1
––––––––
1 April 2004 Tax written down value 85,760
Depreciation allowance (17,152) 1
––––––––
68,608
1 July 2004 Addition 12,000 1
Depreciation allowance on addition (9 months) (1,800) 2
––––––––
1 April 2005 Tax written down value 78,808
31 March 2006 Disposal proceeds (20,000)
––––––––
Loss on disposal (58,808) 1
–––––––– ––
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(c) Motor vehicles (25%)
1 April 2001 Cost 65,500
Depreciation allowance (16,375) 1
––––––––
1 April 2002 Tax written down value 49,125
Depreciation allowance (12,281) 1
––––––––
1 April 2003 Tax written down value 36,844
Depreciation allowance (9,211) 1
––––––––
27,633
1 October 2003 Addition 16,000 1
Depreciation allowance on addition (6 months) (2,000) 2
––––––––
1 April 2004 Tax written down value 41,633
Depreciation allowance (10,408) 1
––––––––
1 April 2005 Tax written down value 31,225
31 March 2006 Disposal proceeds 49,000
––––––––
Gain on disposal 17,775 1
–––––––– ––
8
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 Marks
Paper T9LSO
6D–LSOAA

4 (a) A deduction is allowed for any expense or loss but only to the extent incurred by the taxpayer during the
year of assessment in the production of income subject to tax. 3
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(b) The following are the specifically disallowed expenses:

1. Expenses of a personal nature. 1
2. Income tax. 1
3. Cost of acquiring, producing, or improving property or for other expenses chargeable to capital account. 2
4. The cost of a gift to an individual if the gift is not included in the gross income of the recipient. 2
5. A fine or other similar penalty paid to a government for breach of any law. 2
6. An insurance premium paid to a non-resident insurer in respect of an asset or risk located in Lesotho. 2
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10
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(c) (i) Scholarship payable for tuition or fees for full-time instruction at an educational institution is exempt
from income tax. The exemption is confined to scholarships payable in respect of tuition or fees, and
does not include scholarships or a part of a scholarship for living expenses. 2
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(ii) Maintenance and child support payments are exempt from income tax. The income represented by the
payment is taxed on the payer only, as the payer is not allowed a deduction for tax purposes. 3
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(d) (i) Every vendor being a partnership, trust, company or an individual whose principal place of business is
outside Lesotho or who is outside Lesotho for more than one tax period shall have a nominated person
for value added tax purposes who is an individual who resides in Lesotho. The nominated person is 4
responsible for any obligation imposed on the partnership, trust, company, or individual under the Act. 1
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5
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(ii) The name of such a person shall be notified to the Commissioner in the first period in which the
partnership, trust, company, or individual becomes a vendor, or in the case of an individual who
is outside Lesotho, in the first tax period in which the individual is outside Lesotho. 2
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