Kanye plc is a Botswana resident company with subsidiaries in retail and distribution. You are a trainee accountant working at Kanye plc. You report to the accountant of it , Ronnie M.
Kanye plc has a 75% shareholding in Kopong ltd, a Botswana resident company which is in retail industry in Lobatse.The remaining 25% of the shares are owned by Mr Moratile Manyi who is the sales director at Kopong Ltd. Kopong Ltd has a 31 December year end. Kopong ltd's tax adjusted trading profit for the year ended 31 December 2019 is P1,960,000, after paying Moratile salary of P720,000

Following a strategic review Kanye Plc board decided to restructure its investment in Kopong Ltd. The board did not conclude on how this should be done but is considering two proposals.
The supervisor gave you the following briefing.;
There are two proposals bring considered to restructure Kopong ltd and the board would like to understand the tax implications for the 2 proposals. If Kopong is disposed Moratile will be transferred to another subsidiaries the Finance Director. The Directors expect that the structure would be completed by February 2022. Kopong ltd's Finance Managet has prepared some information for the Kanye plc board which includes information regarding the two ways in which Kopong ltd could be restructured.

Moratile has agreed to the restructure of Kopong ltd and would like also to understand the tax implications for his personal tax position. Moratile has accepted the position of Sales Director at another of Kanye plc's subsidiaries on a salary of P672,000 p.a. if Kopong ltd is disposed.
The two proposals to consider are given below.Both of which are with Pitikwr Ltd

PROPOSAL 1
Sale of the trade to Pitikwe ltd
Pitikwe Ltd has made an offer to buy the whole share capital of Kopong ltd. Pitikwe lyd has offered to pay P3,870,000 in cash for the shares. It was agreed with the creditors that Pitikwe ltd would take over all the liabilities of kopong ltd.
Kopong ltd assets and liabilities are detailed in Exhibit 1.

PROPOSAL 2
Kopong ltd could sell off individual assets to Pitikwe ltd at the realization amounts of P4,509 000 and then settle its liabilities. Assume Pitikwe ltd will not settle the tax liability for Kopong ltd.

YOUR Supervisor has also left you the following note.
' I would like you to prepare some briefing notes for me that invlude:
For each of the two proposals for the restructure of Kopong ltd's business (Exhibit 1):
i) Explain and calculate the income tax and capital gains tax for Kopong ltd, Kanye plc and Moratile of the disposal of Kopong ltdon 1 February 2022

ii) Calculate the cash receivable by both Kanye plc & Moratile after the disposal.

REQUIRED
PREPARE BRIEFING NOTES AS REQUESTED BY YOUR SUPERVISOR. (30marks)

EXHIBIT 1
Kopong ltd's share capital comprises 600 000 P1 Ordinary shares. Moratile incorporated the company in 2005 when he subscribed for 100% of the shares at par. In 2007, he sold 450,000 shares to Kanye plc for P4.00 per share.

Kopong ltd protected amounts realizable on disposal on 1 February 2022 as follows;

carrying amt realizable
P'000 P'000
Admin block 532 1,270
P&M 514 297
inventory 288 162
Bank loan (1) (450) (450)
overdraft (2) (180 ) (180)
Trade & other (270) (270)
TOTALS 1,532 3 609

NOTES

(1) The bank loan is secured by a fixed charge over the admin block

(2) The bank overdraft is secured by a floating charge over the assets

(3) Unless otherwise specified, the income tax value for the assets & liabilities is equal to their carrying amounts.

(4) The building cost P666 000 in June 2011

(5) The tax written value of the plant & machinery at 1 October was P378,000