(b)(ii) Income tax implications arising on the disposal of the industrial building: On the disposal of the industrial building, a balancing adjustment will arise. The balancing adjustment is computed by comparing the net sales proceeds, restricted to the original cost, with the tax written down value of the building, as follows: 1 P’000 Cost 380 Less: Initial allowance at 25% (95) 1 Less: annual allowances 1996 to 2015: – P380 x 2.5% x 20 (190) 2 --------- Tax written down value b/f 95 Sales proceeds, restricted to original cost (380) 1 --------- ------ Balancing charge 285 5 --------- ----- (c) The finance manager has violated the fundamental principles of integrity and objectivity. The tax adviser must call for a meeting with the finance manager and the management team request them to inform BURS of the amounts that were not disclosed in the 2014/15 tax return. If the finance manager/GMD refuse to comply with the tax adviser’s request, then the tax adviser must explain to the finance manager that he is compelled by professional conduct to report the matter to BURS. The tax adviser must also inform that such conduct from the management of GMD may compel him to resign from acting as tax adviser. (3 marks) (Total: 30 marks) Question 4 (a) Tax implications of the outstanding loans between the directors and Lekaje Enterprises Ltd The directors of Lekaje Enterprises Ltd qualify to be treated as participators of a close company because they own more than 5% of the equity shares of Lekaje Enterprises Ltd. 2 Mpho Lekaje’s interest free loan to Lekaje Enterprises Ltd
(b)(ii) Income tax implications arising on the disposal of the industrial building: On the disposal of the industrial building, a balancing adjustment will arise. The balancing adjustment is computed by comparing the net sales proceeds, restricted to the original cost, with the tax written down value of the building, as follows: 1 P’000 Cost 380 Less: Initial allowance at 25% (95) 1 Less: annual allowances – 1996 to 2015: P380 x 2.5% x 20 (190) 2 --------- Tax written down value b/f 95 Sales proceeds, restricted to original cost (380) 1 --------- ------ Balancing charge 285 5 --------- ----- (c) The finance manager has violated the fundamental principles of integrity and objectivity. The tax adviser must call for a meeting with the finance manager and the management team request them to inform BURS of the amounts that were not disclosed in the 2014/15 tax return. If the finance manager/GMD refuse to comply with the tax adviser’s request, then the tax adviser must explain to the finance manager that he is compelled by professional conduct to report the matter to BURS. The tax adviser must also inform that such conduct from the management of GMD may compel him to resign from acting as tax adviser. (3 marks) (Total: 30 marks) Question 4 (a) Tax implications of the outstanding loans between the directors and Lekaje Enterprises Ltd The directors of Lekaje Enterprises Ltd qualify to be treated as participators of a close company because they own more than 5% of the equity shares of Lekaje Enterprises Ltd. 2 Mpho Lekaje’s interest free loan to Lekaje Enterprises Ltd
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