University of Zimbabwe Department of Accountancy Tax Law and Practice II March 21, 2013

Question 1

AC415

Tutorial 2

Mr Murimi and Mr Kukohwa are partners on Chibage Farm where they carry out farming operations. Their profit sharing ratio is 50:50. The following information is for the partnership for the tax year ended 31st December 2013: Expenses: Administration and general expenses (allowable) Depreciation of motor vehicle and office furniture Donation Fertilizer Foodstuffs for livestock Grain bags Maintainance and repairs: Farm buildings Implements Lorries and tractor Maize and potato seed Petrol, oil and grease Livestock purchases Railage and transport Rations for workers Seed spray Veterinary surgeons fees 6 710 650 1 100 8 460 11 750 1 300 48 000 815 2 450 3 500 400 1 270 1 250 100 4 850 4 200 3 000

Wages domestic servants(in the profit sharing ratio) 2 400 Wages- farm labourers Receipts: Bean crop Maize Meat Details on livestock: 1 Jan 2012 livestock 3 bulls; 140 cows; 30 oxen; 100 tollies; 80 heifers and 50 calves. Purchases 10 cows at $1 100; 10 oxen at $1050 and 3 000 tollies $530. Sales were as follows: 1 bull $1 140; 50 cows $54 500 and 40 tollies $22 400. Deaths were as follows 1 bull; and 5 oxen due to an epidemic disease declared in a statutory instrument by the Minister. 60 heifers moved to cows; 20 tollies to oxen; 40 calves became 23 tollies and 17heifers. There were 17 new births during the year with one calf dying. The values that the farmer is using is the PPV for the bull and the FSV for the rest. The bulls cost $300 each; FSVs were as follows: cows $75; oxen $65; tollies $50; heifer $60; calves $35. Additional information: Petrol,oil and grease include $200 and $300 for the private use by Murimi and Kukohwa respectively. The partners families consumed produce with an estimated cost of $750 and market value $950; livestock was 1 oxen and 3 tollies by Murimi; 1 oxen and 2 tollies by Kukohwa. The livestock is not included in the information above. The market value for the livestock consumed is $1 050 for oxen and $2 800 for tollies. The following capital expenditure was incurred during the year: Dip tank $3 000; permanent road $7 000; tree planting at a cost of $4 500; soil erosion prevention barriers $10 000; eradication of a poisonous plant. At 31st December 2012 there was a crop of maize growing on the land and the cost relating to establishment and maintenance of the crop is $7 365. There was no produce at hand at both the beginning and end of the tax year. Information relating to each of the partners: Murimi received a salary of $5 000 from the partnership while Kukohwa received $4 500 from a consulting project he undertook outside the partnership. The partnership paid $6 000 for each partner for a retirement annuity. Kukohwa paid medical expenses of $1 700 and Murimi paid $890 medical contributions. The partnership 15 000 168 000 19 755 13 500

paid $700 golf membership subscriptions for Kukohwa. It is established that a lot of business deals for the partnership arise from golf acquaintances. You are required to calculate 1. The tax payable by each partner. 2. The tax payable if each partner seeks to reduce his tax burden for the tax year. Maintenance costs included in the above expenses relating directly to livestock for the year are $13 650. The sales were due to the epidemic.