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Farming Tax Assignment

- Maskiri and Roki own a 10,000-acre cattle ranch in Zimbabwe as part of a partnership called MR Farming. - In 2017, MR Farming had revenue of $634,000 and costs of $348,700, resulting in gross profit of $285,300. - After administrative costs of $159,140, MR Farming's net profit before tax was $125,660. - To calculate Maskiri's taxable income, the assistant considers MR Farming's income, expenses, asset values and cost bases according to the information provided.

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Siphathisiwe Ndlovu
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50 views4 pages

Farming Tax Assignment

- Maskiri and Roki own a 10,000-acre cattle ranch in Zimbabwe as part of a partnership called MR Farming. - In 2017, MR Farming had revenue of $634,000 and costs of $348,700, resulting in gross profit of $285,300. - After administrative costs of $159,140, MR Farming's net profit before tax was $125,660. - To calculate Maskiri's taxable income, the assistant considers MR Farming's income, expenses, asset values and cost bases according to the information provided.

Uploaded by

Siphathisiwe Ndlovu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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All amounts are in United States Dollars and exclude VAT unless otherwise stated.

Maskiri and Roki are in partnership called MR Farming (MR), operating a 10,000-acre farm in the
Matusadonha belt in Muzabani, North West of Zimbabwe with an assessed carrying capacity of
2,500 cattle. The farm is being used for cattle ranching activities and since it is in a remote area
the partnership operates a lodge mainly used by hunters who are largely foreign but visit the
game reserve nearby. The Matusadonha belt also has beautiful scenery which is a tourist
attraction. The partners share profits in ratio of 2:1 between Maskiri and Roki respectively and
have operated since 2010 when they bought the farm for $18 million.
You are a CTA student and sister to Roki and the partners have engaged you as their bookkeeper.
You are preparing the tax computation based on the following Income and Expenditure and other
information

EXTRACT OF INCOME STATEMENT for MAGWIRI TRUST FOR THE YEAR ENDED 31
DECEMBER 2017
Notes Amount
Revenue 1 634,000.00
Cost of Sales (348,700.00)
Gross Profit 285,300.00

Administrative Costs
Livestock Expenses (54,000.00)
Repairs and Maintenance (18,000.00)
Fencing 2 (2,500.00)
Staff costs 3 (36,000.00)
Depreciation (7,400.00)
Roads 4 (8,800.00)
Contour Ridging 5 (2,500.00)
Fuels and Oils (26,880.00)
Water Furrows 6 (3,560.00)

Net Profit Before Tax 125,660.00


Notes
1. Revenue and Cost of Sales
Revenue is made up of the following line items:
Cattle sales $400,000
Lodge operations $234,000
The 2016-2017 farming year was declared a drought year by the relevant Ministry and in
January 2017 MR was forced to sell 1,100 cattle for $200 each on average to get a total
of $220,000 revenue from forced sales which had cost MR $170,000. Another herd of 450
cows was sold for $180,000 later in December 2017 but were not drought forced sales.
MR had started the year with 2,000 cattle, in January 80 died due to the drought, while
there were very low births of only 20 during the whole year in December 2017. The Fixed
Standard values for both cows and oxen is $200.
• The lodge operations were depressed due to the drought which also adversely
affected tourist arrivals.
• In September of 2017 a good rainy season began and in October an MR began to
restock its herd by buying 2,630 in October for $458,000.00.
2. Fencing
MR erected a fence to create an enclosure for feeding livestock for $2,150. MR also
repaired sections of the perimeter fence for $350.
3. Staff Costs
3.1. The partners received salaries of $6,000 each for the whole year.
3.2. The partnership took out insurance policies on the lives of the partners wherein
the Partnership is the beneficiary if any of the partners dies. MR paid $1,200 for
each partner.
3.3. MR contributed $840 for each partner for their medical aid expenses for the year.
4. Roads
MR created and maintained temporary roads during the year for access to paddocks and
for the safari tours.
5. Contour Ridging
For the purposes of prevention of soil erosion, MR ploughed some sections of the farm
with contour ridges.

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6. Water furrows
Due to the drought, MR created huge water troughs feeding from its main reservoir. The
water had to be channelled to those troughs using water furrows which were built for
$3,560.

MR has the following assets:


DATE OF CARRYING
COST
ACQUISITION AMOUNT

Farm land 28-Feb-10 18,000,000.00 23,500,000.00

Tractor 31-Jul-15 56,000.00 28,933.33

Staff Housing - 10 Units constructed for equal costs 30-Mar-11 285,000.00 147,250.00

Lodges 20 years 26-Jun-12 350,000.00 125,000.00

Motor Vehicles - 2 x Toyota Prados 03-Mar-15 130,000.00 67,166.67

Water Reservoirs constructed 09-Sep-11 15,000.00 2,500.00

Dip Tank 05-Apr-14 1,200.00 -

Cattle Pens 05-May-14 16,000.00 5,700.00

18,853,200.00 23,876,550.00

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Required

Marks
Calculate Maskiri’s Taxable Income for the year ended 31 December
2017.
1 In your calculation provide brief notes to each entry and should begin 40
with the Net profit before tax for MR.

Total Marks 40

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