Abwenzi limited opens a new factory in Kawambwa and receives a government grant of k20,000 in respect of machinery costing of k105,000. The asset has an estimated life of 4 years. The company uses straight line method of depreciating the asset. Show the income statement and the Balance sheet extracts for the four years period under both methods used for accounting for government grants

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.