Mr Mlauzi bought a grocery and butchery business as a going concern from Bubi pvt ltd at

the end of February 2012.The price of the business was allocated to the different assets as
follows:
$
Land 18 000
Commercial building 10 000
Plant and Machinery 4 700
Furniture and fittings 35 00
Butchery equipment 5 300
Delivery van 2 500
Mazda B2200 pickup truck 2 000
Toyota corolla 3 500
Debtors 2 700
Stock 9 000

Mr Mlauzi submitted his first profit and loss account to 31 December 2012 showing the
following:
$

Gross profit 25 500

Bad debts recovered 750
Rental Income 1 300

Depreciation (860)

Advertising (700)

General expenses (570)

Bad debts (1000)

Insurance (445)

Legal expenses (500)

Repairs (6500)

Rates (1500)

Provision for Bad debts (700)

Salaries (5 800)

Travelling expenses (875)

Net profit 8 100










The following information was also supplied with the return:
(1) The stocks purchased with the business were correctly applied in the calculation of gross profit.
(2) Mr Mlauzi bought the following assets for the business during the year:
$
Toyata Camry sedan bought 1/10/2012 9 000
Furniture 2 500
Land 5 000
Butchery equipment 2 000
The land was a quarter acre stand adjacent to the business premises on which Mr
Mlauzi intended to build a managers house and some workers quarters

(3) Bad debts included the following
Meat and groceries sold to P Maruta by the previous owner in September 2011. The customer died insolvent in
June 2012 before paying the debt of $ 150.

4 Mr Mlotshwa ordered meat for his daughters wedding in August 2012. It was alleged that the meat was bad
and caused the guests at the wedding to fall sick. Mr Mlotshwas refused to pay the $ 400 for the meat and the
case went through the magistrates court where M Mlauzi lost the case. The debt was written off in December.
The balance of the debts are allowable.

5 General expenses included licencing fines of $50, speeding fines $20 charged to Mr Mlauzi when he was
driving from Bulawayo to collect orders and $2 00 for groceries donated to a local burial society.
6 Insurance comprised the following:
$
Business assets 200
Householders policy on Mr Mlauzis Bulawayo house contents 245
7 Legal expenses
Bad debts recovered 250
Drafting Mr Mlauzis Will 250

8 Repairs included an amount of $5 000 incurred in renovating the store and butchery building which was in a
bad state. Mr Mlauzi pulled down one wall and extended the butchery side to include a cold room. This was
done after the building was bought but before Mr Mlauzi commenced business. The other $ 500 was paid to
clear brick rubble on the adjacent stand. The rest was for minor repairs to the business furniture and equipment
after trade had commenced.
9 The provision for doubtful debts was a percentage of outstanding debts at the end of the trading period to cater
for any unrecoverable debts purchased from the previous owner.
10 The Corrolla was sold in October 2012 for $ 4000 when Mr Mlauzi bought the Camry. He decided to claim
were and tear on the cars and elected to claim special initial allowance on all the other assets. Both vehicles
were used 20% for private purposes.
11 Mlauzi rented out a part of the commercial building on 1 October 2012 to Mareza, Mareza was to pay
monthly rentals of $100 and in addition he had paid $ 1000 to receive tenancy rights for 5 years

In 1 February 2012 Mlauzi entered into a 9 year lease agreement with Zapiro where Zapiro would let out a cold
room to Mlauzi. Mlauzi effected improvements of an agreed value of $ 10 000 and he first used it in 31 July
2012. These amounts have not been included in his tax submition.

Required
To calculate the tax payable by Mr Mlauzi for the year ended 31 December 2012





Net profit 8 100
Add back
Bad debts:
P Maruta allowable -
Mr Mlotshwa allowable -
Depreciation 860
General expenses:
Fines -licencing prohibited 50
-speeding fines prohibited 20
-donation charitable 20
Insurance:
Business assets allowable -
Household policy private 245
Legal expenses:
Bad debts recovery allowable -
Drafting WILL private/prohibited 250
Repairs:
Store renovation capital nature 5 000
Brick rubble capital nature 500
Rates allowable -
Provision for doubtful debts prohibited 700
Salaries allowable -
Travelling expenses allowable -
Lease improvement 490
15255
Add recoupment 420
Less capital allowances
SIA (5625)
Wear & tear (1155)
Taxable income 8895
Tax chargeable @
Aids levy
Tax payable










Commerc
ial
Building
Plant and
Machine
r
Furnitur
e and
Fittings
Butchery
Equipmen
t
Deliver
y Van
Mazd
a
Truck
Corolla Camry total
COST 10 000 4 700 3 500 5 300 2 500 2000 3 500 9 000
Additions 5 000 2 500 2 000
SIA 1175 1500 1825 625 500 5625
W&T 375 420/10
5
360/90 1155
ITV 2975

















Toyota Corolla
Cost 3 500
Wear &tear
20%x 9/12 months
Wear &tear: private 20% 105
Business 420
ITV 2975
Sale price 4 000
Potential recoupment 1025


Actual recoupment 420




Lease Improvement deduction

The expenditure on the improvements is allowed in monthly instalments beginning in the year in which the
improvements are first occupied or used for the purposes of trade or in production of income. The allowance is
calculated by dividing the cost of the lease improvements by the period of the lease or ten years whichever is
lesser. Where the land or buildings occupied are used for both business and private purposes the allowance is
apportioned accordingly.

A lessee can deduct lease improvements over the shorter of lease term or 10 yearseffective the date
improvements are fist used by him for purposes of trade

= $10 000 * 5/12
8. 5
= $ 490



Section 15(2)(b) Repairs to articles, implements, machinery and utensils used, and to property occupied for
the purpose of trade and repairs resulting from the letting of property. Are allowable but the rent of, or cost of
repairs to, any premises not occupied for the purposes of trade, or any dwelling house or domestic premises, are
dissallowed
Repair is restoration by renewal or replacement of subsidiary parts of the whole i.e. restoring an asset to its
original state at the time it was first owned by the taxpayer. It is not necessary, however that the materials used
should be identical with the materials replaced. Repairs are to be distinguished from improvements. The test for
improvements is whether a new asset has been created resulting in an increase in the income earning capacity or
whether the work undertaken merely represents the cost of restoring the asset to a state in which it will continue
to earn income as before.

A premium is taxable in full in the year of its accrual to the lessor.