Answers

ACCA Certified Accounting Technician Examination – Paper T9(LSO) December 2007 Answers
Preparing Taxation Computations (Lesotho) and Marking Scheme

Marks
1 Lipuo Molatelle

(a) Chargeable income for the year ended 31 March 2007

Employment Business Property
income income income
M M M
Employment Income 210,000 1
Pension 0 ½
Cash allowances 90,000 1
Reimbursement 0 ½
Business income 160,000 1
S.27 interest received 0 ½
Sale of fridge 0 ½
Rental income 19,000 1
–––––––– –––––––– ––––––––
300,000 160,000 19,000
–––––––– –––––––– ––––––––

Total gross income 479,000

Allowable expenses
Motor car running costs (paid for by LHDA) 0 1
Staff welfare 4,200 ½
Wages and salaries 66,000 ½
Office general costs 12,500 ½
Interest paid (M6,950 x 1·25) 8,688 2
Repairs and maintenance 3,500 ½
Depreciation 0 ½
Depreciation allowance (working 1) 12,800
Accounting fees 8,200 ½
Provision for outstanding expenses (working 2) 27,705
Insurance premium (working 3) 14,000
—————– 157,593
—————–
Chargeable income 321,407
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Workings
1. Depreciation: Furniture and engineering equipment
M
1. 1 April 2005 Cost 80,000
1. 31 March 2006 Depreciation at 20% 16,000 2
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1. Adjusted cost base (ACB) 64,000
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1. 31 March 2007 Depreciation at 20% 12,800 1
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1. Investment assets are not depreciable. Therefore, depreciation on the rented flats is not allowed as
a deduction nor is any depreciation allowance available. 1

2. Provision for outstanding expenses

M
1. December 2006 Electricity paid 3,200 ½
1. Stationery paid 7,040 ½
1. Provision for doubtful debts 0 ½
1. Provision for unpaid expenses 0 ½
1. Rent paid 17,465 ½
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1. Total 27,705
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3. Insurance premiums
M
3. Staff work compensation policy 4,000 ½
3. Professional indemnity for engineering staff 10,000 ½
3. Ms Molatelle’s life assurance policy 0 ½
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Total 14,000 20
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(b) (i) Tax payable for the year ended 31 March 2007
M
Chargeable income (from (a) above) 321,407
Chargeable Income Tax rate Tax payable
M
1st M35,060 25% 8,765 1
M286,347 35% 100,221 1
–––––––––
Total tax due 108,986
–––––––––
Less: Withholding taxes
Tax withheld by LHDA (66,494) 1
Withholding tax on government payment (5,600) 1
Withholding tax on pension 0 1
––––––––– ––––
Net tax payable (balance due) 36,892 5
––––––––– ––––

(ii) Ms Molatelle must submit an annual return of income to the Commissioner of Income Tax and
pay any outstanding tax due not later than the last day of the third month following the end of
the year of assessment i.e. by 30 June 2007. 2
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(c) Calculation of fringe benefit tax M

Taxable value of car (350,000 x 15%) 52,500 1
Taxable amount (52,500/0·65) 80,769 1
Fringe benefit tax (80,769 x 35%) 28,269 1
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3
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(d) A gain arising from the disposal of personal assets is exempt from tax. Similarly, a loss on the disposal
of such assets is not allowable for tax purposes. 2
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2 Naledi Bus Service

(a) Depreciation allowances for the year ended:

Group 1 Group 2 Group 4 Total
25% 20% 5%
31 March 2003
Opening balance – – ½
½ previous acquisitions – – ½
½ current acquisitions 164,000 171,000 2
–––––––– ––––––––
164,000 171,000
Depreciation (41,000) (34,200) 75,200 1½
–––––––– –––––––– ––––––––
Adjusted cost base 123,000 136,800
–––––––– ––––––––
31 March 2004
Opening balance 123,000 136,800 ½
½ previous acquisitions 164,000 171,000 ½
½ current acquisitions – 98,500 1
Less: Disposals (80,000) – 1
–––––––– ––––––––
207,000 406,300
Depreciation (51,750) (81,260) 133,010 1½
–––––––– –––––––– ––––––––
Adjusted cost base 155,250 325,040
–––––––– ––––––––
31 March 2005
Opening balance 155,250 325,040 ½
Addition in year – – 213,890 1
½ previous acquisitions – 98,500 ½
½ current acquisitions – 319,500 1
Less: Disposals (96,150) 1
–––––––– –––––––– ––––––––
155,250 646,890 213,890
Depreciation (38,813) (129,378) (5,347) 173,538 2
–––––––– –––––––– –––––––– ––––––––
116,437 517,512 208,543
–––––––– –––––––– ––––––––
31 March 2006
Opening balance 116,437 517,512 208,543 ½
½ previous acquisitions – 319,500 ½
½ current acquisitions – 97,500 1
–––––––– –––––––– ––––––––
116,437 934,512 208,543
Depreciation (29,109) (186,902) (10,427) 226,438 2
–––––––– –––––––– –––––––– ––––––––
Adjusted cost base 87,328 747,610 198,116
–––––––– –––––––– ––––––––
31 March 2007
Opening balance 87,328 747,610 198,116 ½
½ previous acquisitions – 97,500 ½
½ current acquisitions – –
Less: Disposals (120,000) (76,890) 2
–––––––– –––––––– ––––––––
(32,672) 768,220 198,116
Depreciation – (153,644) (9,906) 163,550 1½
–––––––– ––––––––
Balance taken to revenue (32,672) 32,672 1
–––––––– –––––––– –––––––– ––––––––
Adjusted cost base carried forward 614,576 188,210 ½
–––––––– –––––––– –––
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(b) Under the pooling method, a gain on disposal, being the excess of disposal proceeds over the balance of the
pool, is included in gross income. 1
A loss on disposal, being the balance after deducting any disposal proceeds, is treated as an allowable
deduction only when all the assets in the pool have been disposed of. 1
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2
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(c) Assets in Groups 4 and 5 are specifically excluded from using the pooling method. 1
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3 Mr Ralimpe and Sunshine Motors

(a) 1 Car fringe benefit M

Taxable value (142,000/0·75) 189,333 2
Taxable amount (189,333 x 15% x (365–104)/365) – (500 x 12) 14,308 3
Taxable amount (14,308/0·65) 22,012 ½
Fringe benefit tax at 35% 7,704 ½
2 Housing fringe benefit
The maximum house benefit is the lower of the costs to the employer and 20% of remuneration
House benefit (8,200*12) 98,400 ½
Employee contribution (98,400*20%) (19,680)
––––––––
House benefit based on rental costs 78,720 2
––––––––
Salary 120,000 ½
Car (as above) 14,308 ½
Utilities ((400 + 700 + 1,200)*12) 27,600 ½
Debt waiver 8,500 ½
Medical aid (1,595*12) 19,140 ½
Security guard and domestic assistant (1,748 + 600)*12) 28,176 ½
House (as above) 78,720 ½
––––––––
Total remuneration 296,444
––––––––
20% maximum restriction 59,289 ½
––––––––
Taxable amount (59,289/0·65) 91,214 1
Fringe benefit tax at 35% 31,925 ½
3 Utilities
Taxable amount (27,600/0·65) 42,462 1
Fringe benefit tax at 35% 14,862 ½
Domestic assistance
Taxable amount ((600*12)/0·65) 11,077 1
Fringe benefit tax at 35% 3,877 ½
The provision of a security guard is an exempt fringe benefit 1
4 Medical aid
This is an exempt fringe benefit 1
5 Debt waiver fringe benefit
Taxable amount (8500/0·65) 13,077 1
Fringe benefit tax at 35% 4,577 ½
Total fringe benefit tax (7,704 + 31,925 + 14,862 + 3,877 + 4,577) = 62,945 ½
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(b) The fringe benefit tax due on 31 March 2007 is payable within 14 days after 31 March 2007 i.e. by
14 April 2007. 1
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(c) A cash allowance of M800 per month is not a fringe benefit. It is included in the employee’s employment
income and is therefore taxable at his marginal income tax rate. 2
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4 Tanki
Gains/losses on disposals of assets

1 There is no gain/no loss on a transfer of assets between former spouses as part of a divorce settlement,
therefore the disposal by Tanki does not result in a chargeable event. 1
The cost base of an investment asset on such a transfer is the adjusted cost base of the assets at the
date of transfer. Therefore, the cost base of the shares to Mosa is M90,000. 2

M
Proceeds 150,000
Cost base 90,000
––––––––
Taxable gain (Mosa) 60,000 1
––––––––

2 Where there is an involuntary disposal of an asset, as in this case, no gain/no loss arises to the extent that a
similar asset is subsequently acquired with the proceeds of the disposal. 1

M
Proceeds (insurance) 50,000
Cost base 40,000
–––––––
Taxable gain (Tanki) 10,000 1
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The cost base of the replacement asset is the adjusted cost base of the involuntarily disposed of asset.
Thus, the cost base of the replacement vehicle is M35,650. 2

3 There is no gain/no loss on asset swaps. The assets are deemed to have been acquired at their respecitve
adjusted cost bases. 2

Thus, the cost base of the van to Tanki is M60,000; and 1

the cost base of the car to Refiloe is M40,000. 1
4 The contribution of an asset into a partnership is treated as if the partner has disposed of the asset to the
partnership. However, if, as here, the partner’s interest in the partnership will be 50% or more immediately
after the contribution of the asset, then the transfer of the asset(s) is a no gain/no loss transfer. 2

The tax cost to the partnership is the adjusted cost base of the contributing partner immediately prior to the
contribution. Therefore, the laptops will be deemed to have been acquired by the partnership at their adjusted
base cost at the date of transfer of M20,630. 2
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