CENTRE FOR ACCOUNTING STUDIES

FOUNDATIONS IN ACCOUNTANCY
MOCK TEST 1

FOUNDATIONS IN TAXATION –
LESOTHO (FTX – LSO)

Tuesday 1 November 2022

Time allowed: 2 hours

This question paper is divided into two sections:

Section A – ALL TEN questions are compulsory and MUST be attempted

Section B – ALL NINE questions are compulsory and MUST be attempted

Tax rates and allowances are on pages 2 – 3

Do NOT open this question paper until instructed by the supervisor

Do NOT record any of your answers on the question paper
This question paper must not be removed from the examination hall
SUPPLEMENTARY INSTRUCTIONS

1. Calculations and workings need only be made to the nearest M;

2. All apportionments should be made to the nearest month;
3. All workings should be shown in Section B
TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used in answering the questions:

Second schedule
Resident Individual Income Tax Rates

Chargeable income Rate of tax

First M61,080 20%

Over M61,080 30%
Personal tax credit M7,260

Withholding tax rates

Payments to resident contractors 5%

Payments of interested by a resident to a resident 10%
Payments of Lesotho services contract to a non-resident 10%
(A lower withholding tax rate may apply under a double tax treaty 25%
entered into by the government of Lesotho)

Third schedule
Resident Company Income Tax Rates

Nature of Income Rate of tax

1. Manufacturing income derived from a manufacturing activity 10%
of an industrial, scientific or educational nature which promotes
industrial, scientific, educational or other development within
Lesotho
2. Other manufacturing income 10%
3. Other income 25%
4. Commercial farming income 10%

Fourth Schedule
Tax rate for trustees, minors, fringe benefits and electing non-residents 30%
 Fifth Schedule
Minimum Chargeable Income

The multiplication factors are:

Air travel 100%
Electricity amount 5%
Principal residence amount 100%
Schooling amount 5%
Secondary home amount 25%
Vehicle amount

The amounts specified are:

Air travel M2,500

Electricity amount M3,000
Principal residence amount M150,000
Schooling amount, per child M1,000
Secondary home amount M20,000
Vehicle amount M20,000

Sixth Schedule
Declining Balance Depreciation Rates

Group Assets included Depreciation rate

1 Automobiles, taxis, light general purpose trucks; tractors 25%
for use over-the-road; special tools and devices

2 Office furniture, fixtures and equipment, computers and 20%

peripheral equipment and data handling equipment;
buses; heavy general purposes trucks; trailers and trailer
mounted containers; construction equipment

3 Any depreciable asset not included in another group 10%

4 Railroad cars and locomotives and railroad equipment;

vessels, barges, tugs and similar water transportation 5%
equipment; industrial buildings; engines and turbines;
public utility plant

5 Mining 100%
Value Added Tax (VAT)
Standard rate (all other taxable supplies and services) 15%
Supplies of electricity 8%
Telecommunications 9%
Basic foods and agricultural inputs 0%
Exports 0%
SECTION A – ALL TEN questions are compulsory and MUST be attempted

Please use the grid provided on page two of the Candidate Answer Booklet to record
your answers to each multiple choice question. Do not write out the answers to the
MCQs on the lined pages of the answer booklet.
1. Which of the following are either a type of exempt income or a type of
exempt organisation for the purposes of income tax?

1. A public international organisation

2. A gift from an employer to an employee
3. The list M500 from a nominated account
4. Interest received by a tax exempt organisation

A 1 and 2
B 1 and 3
C 3 only
D 2 and 4 (2 marks)

2. XYZ Supermarket (Pty) Ltd paid a management fee of M467,000 on 31 March

2019 to R Consulting (Pty) Ltd, a company based in Botswana for managing its
offshore investments.

How much tax should XYZ Supermarket (Pty) Ltd withhold on the
management for of M467,000 paid on 31 March 2019?

A M46,700
B M23,000
C M70,000
D M116,750 (2 marks)

3. Tosing Ltd owns a fleet of heavy duty truck. A heavy duty truck which was
acquired on 1 January 2016 was sold on 30 April 2019 for M166,000. Its adjusted
cost base on 1 January 2019 was M189,000.

What is the taxable gain/allowable loss for Tosing Ltd on the disposal of
the heavy duty truck on 30 April 2019?

A M (10,400) loss
B M14,800 gain
C M (7,250) loss
D M24,250 gain (2 marks)
4. Lefa, a sales manager at K. Properties (Pty) Ltd, received the following payments
and benefits from his employer during the quarter ended 31 March 2019
M
Per month
Payment of utility costs 1,250
Provision of a security guard 450
What is the fringe benefit tax (FBT) payable by K. Properties (Pty) Ltd in
respect of the payments and benefits provided to Lefa during the quarter
ended 31 March 2019?
A M2,186
B M729
C M536
D M1,607 (2 marks)
5. Makopo (Pty) Ltd, a resident company, withheld M60,000 from the payments of
employee salaries on 28 February 2019.

By which date should Makopo (Pty) Ltd remit the tax withheld from
employee salaries to the Lesotho Revenue (LRA)?

A 7 March 2019
B 28 February 2019
C 15 March 2019
D 31 March 2019 (2 marks)

6. HR Trading (Pty) Ltd uses the cash basic to account for value added tax (VAT).
The following information has been extracted from its records for December
2018.
(1) The sales figure of M802,000 includes M78,000 relating to goods sold on
credit and this amount was still outstanding at the end of December 2018.
(2) The purchases figure of M225,000 does not include additional purchase of
M36,500 which were made during December 2018 and this amount was still
outstanding at the end of December 2018.
All amounts are inclusive of VAT.
What amount of value added tax (VAT) was payable by HR Trading (Pty) Ltd
in respect of December 2018?
A M75,261
B M65,087
C M80,674
D M69,848 (2 marks)

7. Rid Holdings (Pty) Ltd (Rid) paid instalments of corporation tax of M148,000 in
respect of the year ended 31 October 2017. However, Rid realised a loss of
 M33,250 for the year ended 31 October 2018. Rid also has an outstanding value
added tax (VAT) liability of M61,080 for the month of October 2018.
How much can Rid Holdings (Pty) Ltd claim as a refund of corporation tax
in respect of the year ended 31 October 2018?
A M86,920
B M148,00
C M53,670
D M114,750 (2 marks)
8. Bating Plc had a corporation tax liability ofM323,000 for the year ended 31
December 2018 and instalments paid in respect of this year were M168,000.
How much should be paid for each instalment by Bating Plc in respect of
the year ended 31 December 2019?

A M96,900
B M46,500
C M107,667
D M51,667
(2 marks
9. In which of the following situations would submission of an income tax
return NOT be required in respect of a year of assessment by an individual
taxpayer?

A Gross income for the year of assessment is less than the personal tax
credit
B Gross income for the year of assessment is less than M50,000, consists
exclusively of employment income from which income tax has been
withheld, and it is derived from a single employment
C Gross income for the year of assessment consists exclusively of pension
income from which income tax has been withheld
D Income for the year of assessment consists exclusively of property income
from commercial property only (2 marks)
10. What is the gross income threshold above which a taxpayer must account
for tax purposes on an accruals basis?
A M50,00
B M150,000
C M850,000
D M500,000 (2 marks)
SECTION B – ALL NINE questions are compulsory and MUST be attempted

Please write your answer to all parts of these questions on the lined pages within
the Candidate Answer Booklet
1. Rabaki, a resident individual, retired from employment on 31 March 2019 when
his five-year contract with Lipelaneng (Pty) Ltd (Lipelaneng) expired. He received
the following payments from Lipelaneng in respect of the year ended 31 March
2019.

M
Salary 648,000
Gratuity on termination of employment 320,000
Bonus in respect of the year ended 31 March 2019 250,000
Leave pay 122,300
Severance pay 300,000
Gift cheque from Lipelaneng upon retirement 45,000

During the first four years of his employment with Lipelaneng, Rabaki’s annual
salaries were as follows:

Year ended M

31 March 2015 462,000

31 March 2016 498,500
31 March 2017 536,000
31 March 2018 588,400

Other income

In addition to the payments received from Lipelaneng, Rabaki received the following
during the year ended 31 March 2019.

(1) Gross interest received from a non-nominated account 62,500

(2) Dividend received from Blossom Plc, a resident company 166,800
Rabaki also received a superannuation benefit of M500,000 from Maseru Pensions Ltd,
a resident company, and he took a third of the amount as a lump sum immediately and
bought an annuity with the remaining amount.

Required:
Calculate the income tax payable by Rabaki in respect of the year ended31 March
2019.

Note: Indicate any amounts which are not taxable or not tax deductible by use if a zero
(0). (15
marks)
2. Kakai (Pty) Ltd (Kakai), a resident company, operates a consultancy business.
During the year ended 31 March 2019, the company realised the following
income and incurred the following expenses:

Income Notes M
Trading income 998,600
Dividends received from a Lesotho resident company 42,540
Rent received 88,422

Expenses

Operating costs 1 323,400

Depreciation in relation to light motor vehicle 105,469
Licence fee 2 21,000
Annuities paid to former employee 15,000
Insurance paid to an insurance company based in 98,000
Namibia
Entertainment 3 52,000
Consultancy fee 128,000
Notes

(1) The light motor vehicle acquired by Kakai for M562,500 on 30 June 2018 was sold
for M427,000 on 31 March 2019
(2) The licence fee includes a penalty for late renewal of M11,200
(3) Entertainment expenses are comprised of:
M
Customer dinner 26,500
Hire of conference halls for a business meeting 15,600
Employee year end party 10,500
52,600
Additional information
(4) Interest was charged by Kakai at a rate of 5% on loans made to employees during
the year ended 31 March 2019. The Central Bank of Lesotho rate for the same time
period was e12%. The total loan amount issued to employees for the year
amounted to M102,000. Interest charged to employees has not been included in
Kakai’s income, and any associated fringe benefits tax (FBT) has not been included
in operating costs.
(5) Kakai paid a dividend of M148,000 on 28 May 2018 and the related advance
corporation tax (ACT) was duly remitted to the Lesotho Revenue Authority (LRA) on
3 June 2018.
Required:
Calculate the corporation tax payable by Kakai (Pty) Ltd for the year ended 31
March 2019.
Note: Indicate any amounts which are not taxable or not tax deductible by the use of a
zero (0). (15 marks)

3. Motintolo Trading (Pty) Ltd (Motintolo) accounts for value added tax (VAT)
on an accruals basis. The following entries were extracted from its receipts
and payments cash book for January 2019. All amounts are exclusive of
VAT.

Receipts Notes M
Standard rated sales 4,106,920
Zero rated sales 1 928,300

Payments
Purchases 2 2,220,400
Water 32,800
Electricity 121,510
Telecommunications 66,200
Acquisition of a 4x4 car 609,422
Fuel for the 4x4 car 92,860

Notes:
(1) A debt of M245,650 was written off as a bad debt
(2) 26% of purchases were zero rated. The remainder were standard rated but
M300,000 of these purchases were acquired from a non-vendor.
Required
Calculate the value added tax (VAT) payable or claimed by Motintolo Trading
(Pty) Ltd in respect of January 2019.
Note: Indicate any amounts which are not taxable or not tax deductible by the use of
a zero (0). (10 marks)

4. Calculate the withholding tax payable to the Lesotho Revenue Authority

(LRA) in respect of each of the following transactions made in the year
ended 31 March 2019.
(1) Poso Bank (Pty) Ltd, a resident bank, paid gross interest of M834,312 to Fusi
Ltd, a resident company;
 (2) SLB Bank (Pty) Ltd, a resident bank, paid gross interest of M92,288 to the
nominated account of Lisebo, a resident individual;
(3) Mateanong Technologies (Pty) Ltd, a resident company, paid management
fees of M1,320,000 to a company which is resident in South Africa, for
management services provided in respect of technology solely used in
manufacturing;
(4) Serobeng Properties is a resident partnership operated by Roche and Andre
who are both non-resident Roche, however, is an electing resident. Serobeng
Properties made a distribution of profits of M276,400 and M258,000 to Roche
and Andre respectively;
(5) Mei Manufactures (Pty) Ltd, a resident manufacturing company, paid a
dividend of M258,000 out of manufacturing income to a non-resident
company;
(6) Sefate Trading (Pty) Ltd, a resident manufacturing company, paid M102,000
to Mpho, a resident contractor, for construction of a storeroom;
(7) MFP (Pty) Ltd, a resident company, paid M665,000 to Rob, a non-resident,
for a provision of services.
(10 marks)

5. Pirike (Pty) Ltd, a resident company, operates three different businesses and has
the following results
Year ended 31 December 2017 M

Trading profit 528,666

Manufacturing profit 245,750
Commercial farming loss 96,488

Year ended 31 December 2018

Trading profit 410,392

Manufacturing profit 258,300
Commercial farming loss 38,609

Required:
Calculate the corporation tax liability of Pirike (Pty) Ltd in respect of the
year ended 31 December 2018, state the amount of any losses to be carried
forward to the year ended 31 March December 2019 and explain how these
losses can be utilised. (6 marks)

6. Explain the criteria which taxpayer must meet in order to object to an

assessment issued by the Lesotho Revenue Authority (LRA) and outline
 the period after which the Commissioner is deemed to have disallowed the
objection. (6 marks)
7. Morafe, a resident individual, operates a carpentry business and prepares
accounts to 31 December annually. On 1 April 2018, Morafe traded in an old
machine used in his business with a value of M103,440 in exchange for a new
machine costing M702,900. The bank charged Morafe a loan arrangement fee of
M7,029, and this amount was capitalised.
Required:
(a) Calculate the amount of interest expense which Morafe can deduct from
his taxable profits in respect of the finance lease for the year ended 31
December 2018. (3 marks)

(b) Calculate the amount of depreciation which Morafe can deduct from his
taxable profits in respect of the machine for the years ended 31
December 2018 and 2019. (3
marks

8. Neo, a resident individual, is self-employed. During the year ended 31 March

2019, she made the following disposals.
(1) Sale of shares in OK Bazaar (Pty) Ltd for M252,000.
Neo had received the shares as part of a divorce settlement. The shares were
worth M188,000 at the date of transfer.
(2) Destruction of a machine used in Neo’s business in a fire.
The adjusted cost base (ACB) of the machine on the date of fire was
M78,000. Neo received insurance proceeds of M102,000 from her insurance
company in respect of the destroyed machine and she used the proceeds to
purchase a replacement second-hand machine for M92,000.
(3) Sale of the family car for M255,000.
The adjusted cost base (ACB) of the car (which is not used in Neo’s
business) on the date of sale was M200,000.
(4) Sale of an industrial building for M620,000. Neo’s carpentry business
operated in this building.
The adjusted cost base (ACB) of the industrial building on 1 April 2018 was
M356,900.
Required

Calculate the taxable gain or allowable loss for Neo on the disposal (1) – (4)
made during the year ended 31 March 2019. (6 marks)
9. Mosi, a resident individual, works for Tsintsi International School (Tsintsi), an
exempt organisation. The following information is available for the year ended 31
March 2019.
(1) Mosi received an annual salary of M860,000 and an annual housing
allowance of M120,000 from Tsintsi.
(2) Tsintsi contributed M42,000 towards medical aid in respect of Mosi is a
member of Tsintsi’s general medical aid scheme
(3) Tsintsi provided Mosi with a motor vehicle throughout the year for both official
and personal use. However, the vehicle was not available for personal use on
weekends. The value of the motor vehicle when first provided was
M65,000.000.
(4) Tsintsi provided Mosi with utilities amounting to M62,000 per annum.
Required

For the year ended 31 March 2019:

(i) Calculate Mosi’s chargeable employment income with respect to his
employment with Tsintsi International School (Tsintsi); and

(ii) Explain Tsintsi’s liability to fringe benefits tax (FBT) in respect of Mosi.
Note: Indicate any amounts which are not taxable or not tax deductible by use of
a zero (0). (6
marks)