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GTA711S-TAXATION 310-1ST OPP-JUNE 2022 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 0?BOAC
LEVEL: 7
COURSE: TAXATION 310
COURSE CODE: GTA711S
SESSION: JUNE 2022
PAPER: THEORY & APPLICATION
DURATION: 180 MINUTES
MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINERS:
Mrs. Z van der Walt; Ms Y. Andrew & Mr Y. Elago
MODERATOR:
Mrs F. Haimbala
INSTRUCTIONS TO CANDIDATES
1. This paper consists of 6 pages (excluding the cover page).
2. Answer all the questions in the answer book in blue or black ink.
3. Round off all amounts to the nearest Namibian Dollar, where applicable.
4. The names of people or businesses used throughout this examination paper do not reflect
the reality and may be purely coincidental.
5. Questions relating to the examination paper may be raised in the initial 30 minutes after the
commencement of the paper. Thereafter, candidates should use their own initiative to deal
with any perceived error or ambiguities and any assumptions made by the candidates
should be clearly stated.
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QUESTION 1
(15 Marks)
Kanye Kim has been a cattle farmer in Karibib district in Namibia all his life. His main source of income
is the sale of milk from the dairy that he has on his farm. Ninety five percent of Kanye's income is
obtained from selling milk to Namibia Diaries. He concluded the following transactions during the 2022
year of assessment:
Due to heavy rains and flooding during January 2022, part of Kanye's fence around his property was
destroyed. He was underinsured and the full damage was not covered. He also did not have the cash on
hand to repair the fence. Due to the urgency of the matter, Kanye decided to sell some of his cattle to
cover the repair of the fence. In order to obtain the best price, Kanye took 10 cattle to the local stud fair,
to show the quality of his herd of cattle to the attending farming community. He placed an advertisement
in the local paper, as well as the nationally published Farmer's Weekly. On 15 February 2022 he sold 20
cattle at N$8 000 each to a neighbouring cattle farmer.
REQUIRED QUESTION 1:
MARKS
Discuss with reference to case law whether the sale of the cattle was capital or revenue in the
hands of Kanye Kim in terms of the Gross Income definition.
15
QUESTION 2
(25 Marks)
Mr Thomas Gold, trading as "Gold Ideas" sells and repairs jewellery in the local mall and is a registered
Value-added Tax ("VAT") vendor. The following receipts, accruals and expenditure relates to his two -
month VAT period ending 30 November 2021. Gold Ideas only makes taxable supplies. All amounts are
inclusive of VAT, unless stated otherwise.
Receipts and accruals:
Sales
Repairs
Interest
Indemnity award (note 1)
207 000
29 900
5 175
51 750
Expenditure:
Bad debts (note 2)
13 225
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Bank charges
Depreciation (note 3)
Insurance premiums (note 4)
Fuel
Printing and stationery
Purchases (note 5)
Salaries and wages
Rentals (note 6)
920
19 145
3 450
2 990
1 564
160 425
41 400
13 294
Notes
1. The indemnity award of N$51 750 was received from Mr Gold's insurer for two expensive
watches that were stolen from his shop in August 2021.
2. Bad debts of N$13 225 written off by Gold Ideas, comprise of the following:
a. N$10 350 owing by one of his long-outstanding customers from a credit sale. The
customer has since emigrated and Mr Gold is unable to trace the customer.
b. N$2 875 was lent to an employee, who has since left town without repaying the loan.
3. Depreciation (for the two-month period) was charged on the following assets:
Acquisition date Cost (incl VAT) N$ Depreciation N$
Manufacturing equipment 15 September 2021 276 000
8 000
Computer
1 October 2021
14 375
695
Motor vehicle *
1 November 2021 632 500
10 450
*Note: Motor vehicle meets the definition of a passenger vehicle in terms of section 19(1) of the
VAT Act. Mr Gold has the sole use of the motor vehicle and maintains accurate records of his
travelling. He can prove that his business travel is 40% of his total travelling expenses.
4. Insurance premiums of N$3 450 were incurred on the following assets that belong to Gold Ideas:
a. Manufacturing equipment - N$460
b. Office computer - N$230
c. Motor vehicle - N$1 035
d. Trading stock - N$ 1 725
e.
5. Purchases of N$160 425 are made up as follows:
a. Purchases of raw materials from vendors - N$126 500
b. Second-hand jewellery from vendors - N$ 17 750
c. Second-hand jewellery from non-vendors - N$ 16 675
6. Rentals of N$13 294 comprise of the following:
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a. Shop premises - N$ 10 925
b. Cash register - N$ 1 495
c. Tea urn - N$ 874 (located in the shop for himself and employees to make tea)
REQUIRED QUESTION 2:
Determine the Value-added tax payable or refundable of Gold Ideas for the
two-month period ending 30 November 2021. Where no VAT is applicable,
state the reasons thereof.
MARKS
25
QUESTION 3
(30 Marks)
Fitness-2-Go (Pty) Ltd ('Fitness-2-Go') is a local manufacturer and supplier of gym and fitness
equipment. The company's year-end is 31 December. Fitness-2-Go is not an approved
manufacturer.
Fitness-2-Go has started its operations in January 2012 and has since inception grown
considerably.
The following relates to the current year of assessment:
1. The company made sales of N$13,800,000 and total purchases of NS$9,800,000.
2. The closing inventory amounted to NS$350,000 and the opening inventory N$100,000.
3. Running operating expenditure in the production of income was NS$3,080,000 of which
N$2,000,000 related to salaries for the manufacturing team as well as support staff and
management of the company.
4. Fitness-2-Go has leased two properties, one which is used for its manufacturing activities
in Walvis Bay and the other for its head office in Windhoek. During the current year of
assessment Fitness-2-Go has built its own offices in the Central Business District (CBD)
of Windhoek. The date of completion of the building was 31 July 2021 costing Fitness-2-
Go N$3,300,000. Fitness-2-Go was only able to move into the building on 01 September
2021. The monthly lease rental of its prior head office was NS$16,500. Assume that the
prior rental contract ended 31 August 2021.
5. The manufacturing building was leased as from 01 July 2012. The lease term is 20 years.
as part of the lease agreement, a lease premium of N$20,000 was payable upon inception
of the lease as well as monthly rentals of N$15,000. The lease contract also stipulated
that the lessee needs to make improvements to the value of N$750,000. The actual
improvements had a cost of only N$550,000 which was completed 02 January 2014.
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6. As the manufacturing site is outside of Windhoek, Fitness-2-Go provides temporary
housing for management who need to do periodic site visits to the manufacturing site.
Thus, Fitness-2-Go has as from June 2012 also constructed housing for the management
of the company close to the manufacturing site. The ownership of the properties all
belongs to Fitness-2-Go and the total cost of construction of three houses was
N$1,350,000 in total.
7. As Fitness-2-Go manufactures gym and fitness equipment, they had acquired as part of
their business plan a patent to fully automatize (make fully automatic) the production of
the equipment. The patent cost Fitness-2-Go N$680,000 acquired from an American
software developer. The expected useful life of the patent at the date of acquisition of 31
March 2019 was 35 years. Another patent already acquired in August of 2012 was
renewed at the cost of NS150,000 on 15 September 2021.
8. During the year Fitness-2-Go had created a provision for bad debts of N$120,000 (During
2020, N$80,000) based on the historic experience of defaulting debtors. Of the debtors,
N$100,000 went bad in the current year of assessment.
9. Fitness-2-Go took out a 'Key-man Policy' on Sven Goethe, the chief operations officer, a
resident of Germany on 1 February 2021, paying a monthly premium of N$4,500.
10. As part of their business activities, Fitness-2-Go had the following asset transactions:
a) Manufacturing machinery acquired in March 2017 at a cost of N$1,200,000
b) Motor Vehicle no. 1 was acquired in April 2017 at a cost of N$350,000.
• Motor vehicle no. 1 was sold during the current year at a selling price of
N$100,000.
c) Motor Vehicle no. 2 was acquired on 01 July 2020 at a cost of N$450,000.
• During the current year of assessment, the motor vehicle no. 2 was taken out
of use to donate it to a former employee of the company as a gift for his long
service.
• The market value at the date of donation was N$200,000.
d) Motor Vehicle no. 3 was acquired in April 2021 at a cost of N$550,000.
e) Furniture and Fittings acquired in August of 2020 at a cost of N$60,000.
NOTE: IGNORE VAT
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REQUIRED QUESTION 3:
Calculate the taxable income of Fitness-2-Go (Pty) Ltd for the 2021 year of
assessment. Give reasons where applicable, including where no adjustment is
required.
MARKS
30
QUESTION 4
(30 Marks)
Veronica, aged 40, with no dependants, is about get a revised employment contract and has
approached you to clarify some of the tax aspects of the various options she is considering.
She has been offered a package equivalent to a cost to her employer of N$400 000 per annum.
The following are included in the total cost to company package offered to her:
a) A cash salary of N$400 000 per annum.
b) Membership of a non-contributory provident fund. The employer will contribute N$40
000 per annum to the fund, and her cash salary will be reduced accordingly.
c) Veronica receives an interest free home loan of N$200 000 at an interest rate of 7%
from her employer in terms of an approved housing scheme. Assume the official interest
rate is 12%.
d) She receives the use of a company car. The car will have a cost-equal to the retail
market value (including VAT) - of no greater than 40% of gross annual salary.
Veronica's cash salary will be reduced by the cost of leasing the car, which is expected
to be N$4 000 per month, and all running expenses, which are expected to be N$1 500
(excluding VAT) per month.
e) Free meals in a staff canteen. Veronica's salary will be reduced by N$200 per month.
E{:),The acquisition of a flat currently owned by the company. The employer (the company)
· owns a number of flats. The employer will sell a flat (with a market value of N$490 000)
to Veronica for N$200 000. Her salary will be reduced by N$4 000 per month, i.e.,
equivalent to the rental cost of a similar flat.
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REQUIRED QUESTION 4:
1.Discuss the normal tax aspects of each of the items listed for the 2022
year of assessment.
2.Calculate Veronica's normal tax liability for the 2022 year of assessment
assuming she accepts the offer.
MARKS
10
20
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AnnexureA
Individu·· 1 Inco1ne T, x
All individuals (incl. deceased estates and trusts) other than companies.
0 - 50 000
50 001 - 100 000
100 001 - 300 000
300 001 - 500 000
500 001 - 800 000
800 001 - 1 500 000
Above 1 500 000
Not taxable
18% for each NS above 50 000
9 000 + 25% for eacl1 N$ above 100 000
59 000 + 28% for eact1 N$ above 300 000
115 000 + 30% for each N$ above 500 000
205 000 + 32% for each N$ above 800 000
429 000 + 37% for each NS above 1 500 000
Housing loans and 111ortgage subsidies
Housing loans provided to employees at a subsidised rate are taxable to
the extent that the interest rate payable by the employee is less than 12%
per annum (p.a.). The taxable value of housing benefits comprising free or
subsidised housing is determined with reference to the location and size of the
housing, as indicated in the following table:
Windhoek
500
750
1,000 1,400 1,800 2,200 2,800 3,400 4,000
Walvis Bay
350
550
750 1,000 1,300 1,700 2,100 2,550 3,000
Large Towns
250
375
500 700
900
1,100 1,400 1,700 2,000
Small Towns
125
175
250 300
450
550
700
850
1,000
END OF FINAL EXAMINATION - FIRST OPPORTUNITY
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