CHINELUBALIi Farm Ltd, is a Zambian resident company based in Southern Province. The company is engaged in commercial farming and is registered for Value Added Tax. The Finance Director for CHINELUBALI Ltd attended a workshop recently on Tax planning. The director is now thinking of implementing some tax planning strategies that were covered in the workshop in order to minimize the tax liability of the company. Below is the summarized statement of profit or loss for the company for year ended 31 December 2021: CHINELUBALI FARMS LTD STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 OCTOBER 2021 K Turnover 25,300 Cost of sales (12,300) Gross Profit 13,000 Operating Expenses Note 1) (4,400) Finance cost (900) Investment in come (Note 2) 1,550 Profit before tax 9,250

The following information is relevant: (1) Operating expenses include depreciation charges of K274,000, pasture maintenance costs of K330,000, expenditure on destruction of weeds, plants and animal pests detrimental to the land of K460,000, costs associated with the acquisition of new farm land of K94,000, staff salaries of K1,920,000 and fines for breach of labour regulations of K174,000. The balance represents general business expenses, which are all allowable for tax purposes. (2) The company earned the following gross investment income in the tax year 2021, which has been included under investment income in the statement of profit or loss shown above, withholding tax already been paid: K000 Dividends from non-listed Zambian company 590 Dividends from Zambian mining companies 700 Bank deposit interest 140 Interest on Government bonds 320 (3) The following capital expenditure incurred by the company in the tax year 2021, has not been recorded in the financial statements: K000 Construction of storage Facilities 600 Purchase of farm tractors 350 Purchase of farm implements and machinery 290 Rose flower plantation development costs 1,040 Expenditure incurred on works for prevention of soil Erosion 308

Expenditure incurred on water conservation 350 (4) The following personal to holder motor cars were purchased by the company on 1 January 2021 and provided to the following directors: Original Cost Cylinder Capacity K000 Managing Director 260 3000cc Operations Director 200 1900cc (5) Provisional income tax of K670,000 was paid during the tax year 2021. REQUIRED: (a) Distinguish between Tax planning and Tax avoidance. (b) Calculate the capital allowances for Chinelubali Farm Limited for the tax year 2021. (c) Calculate the taxable profit for the tax year 2021. (d) Calculate the company income tax payable by Chinelubali Farms Limited for the tax year 2021. (e) Explain the two (2) circumstances in which a farmer may be allowed to average profits of two (2) different accounting periods.