Summary
Summary TAX3701 ALL PAST PAPERS FROM 2009 TO 2017
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TAX3701 ALL PAST PAPERS FROM 2009 TO 2019
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1QUESTION 1 (20 marks, 24 minutes)
Veli Jeans (Pty) Ltd manufactures and sells fashionable jeans and jackets. The
company’s financial year ends on 31 March. Veli Jeans (Pty) Ltd is a registered vendor for
VAT purposes and is not a small business corporation. The following information is
available for calculating the 2014 taxable income (all amounts exclude VAT unless otherwise
stated):
1. General income and expenses
Veli Jeans (Pty) Ltd’s income from sales is R7 500 000.
Manufacturing costs and purchases of stock during the year amounted to R3 500 000.
2. Closing stock
Jeans – manufactured stock
The following costs were incurred in respect of manufactured jeans stock on
hand at 31 March 2014 and not disposed of, as counted and calculated by the auditors at
17:00. These costs are included in the total manufacturing costs and purchases
of stock of R3 500 000 above.
R
Direct materials and labour 1 900 000
Maintenance of manufacturing machines 400 000
Bonus: marketing manager 500 000
On the evening of 31 March 2014, after the stock taking, there was a heavy
rainstorm. The water on the roof of one of the storerooms leaked onto some of the jeans
stock and caused damage to these items, to the amount of R250 000. These jeans were
considered unsaleable.
Jackets – purchased stock
Veli Jeans (Pty) Ltd bought blue jackets from an agent in Cape Town. The cost incurred in
purchasing these items was R800 000. Transport costs of R10 000 were also paid to
transport the stock to Johannesburg. (Both these expenses are included in the
manufacturing costs and purchases of stock of R3 500 000 above). During the
South African fashion week, the company was shocked to discover that there
had been a sudden change in fashion: blue jackets had suddenly become
unfashionable and only black jackets were in demand. Veli Jeans (Pty) Ltd estimated
that the value of the jacket stock had now diminished by R600 000 owing to
these unforeseen circumstances. None of the blue jackets had been sold at year-end.
T-shirts – donated stock
The CEO of Veli Jeans (Pty) Ltd (Jeepee) has a brother (Pololo) who owned a
clothing shop. He closed down his business in January 2014 and donated all his T-shirts
to Veli Jeans (Pty) Ltd. Pololo acquired the T-shirts at a cost of R300 000, but the market
value on the date of the donation was R200 000. None of these T-shirts had been sold at
year-end.
, 2
QUESTION 1 (continued)
3. Opening stock
The cost of all closing stock on hand as at 31 March 2013 was R955 000 and the market
value R1 000 000, on the same date.
4. Restraint of trade
One of Veli Jeans (Pty) Ltd’s employees (John) resigned on 1 April 2013 and accepted an
appointment at BRO Jeans (Pty) Ltd, one of Veli Jeans (Pty) Ltd’s competitors. Veli
Jeans (Pty) Ltd thought it necessary to restrain John from sharing any of Veli Jeans
(Pty) Ltd’s manufacturing and trade secrets with his new employer for two years,
and gave John a restraint of trade payment of R300 000. This amount constitutes
income in the hands of the recipient.
5. Fixed assets
The following information relates to the transactions regarding fixed assets:
Machine S was purchased second hand on 1 January 2011 for R798 000 (including
VAT). It was brought into use on 15 January 2011.
An additional Machine M was purchased new on 1 February 2013 for R950 000 and
brought into use on the same day. Soon after, Veli Jeans (Pty) Ltd decided that it
no longer required the extra machine, and sold it on 1 May 2013 for R930 000.
Factory F was purchased on 30 November 2012 for R2 500 000. This building was
erected by the seller and never used prior to its purchase by Veli Jeans (Pty) Ltd.
6. Doubtful debts
A list of doubtful debts of R80 000 was supplied to the Commissioner. There
were no doubtful debts in the prior year of assessment.
REQUIRED:
Calculate the taxable income of Veli Jeans (Pty) Ltd for the year of assessment ended
31 March 2014. (20)
,
, 4
QUESTION 2 (19 marks, 23 minutes)
Rentalot (Pty) Ltd owns two rent-producing properties. The one property is rented out to
commercial tenants and the other to residential tenants. Since Rentalot (Pty) Ltd
makes both taxable and exempt supplies for VAT purposes, the Commissioner has
applied a turnover- based method of apportionment to arrive at an acceptable input
tax ratio of 60% commercial and 40% residential. Rentalot (Pty) Ltd is a registered VAT
vendor.
The income and expenditure for its two-month tax period ending 28 February 2014 is
shown below. (All amounts are inclusive of VAT if applicable.)
Income Notes R
Commercial rentals 91 200
Residential rentals 79 800
Interest levied on overdue rentals from commercial tenants 912
Insurance settlement 1 50 000
Expenditure
Bank charges (only vatable items) 1 710
Depreciation 2 5 350
Petrol account for delivery vehicle 4 200
Entertainment of commercial tenants 2 100
Salaries 37 000
Repairs and maintenance 3 13 530
Water and electricity relating to commercial tenants 1 750
Notes:
1. Rentalot (Pty) Ltd submitted a claim to its insurance company in respect of water damage
that occurred on the commercial building ground floor. The insurance company settled the
claim in the following manner:
replaced the carpets to the value of R14 000 and
paid Rentalot (Pty) Ltd R36 000 in cash, which Rentalot (Pty) Ltd intends
using to replace the ceilings.
2. Depreciation for the two-month period relates to the following assets:
a delivery vehicle (purchased in 2011) R5 000
a computer (purchased on 1 February 2014 for R12 540) R 350
3. The air-conditioning unit in the commercial building was repaired after it was damaged by
water, the damage amounting to R2 700. Routine monthly maintenance to the elevators in
both buildings amounted to R10 830.
REQUIRED:
Calculate the VAT payable by or refundable to Rentalot (Pty) Ltd for the two-month
period ended 28 February 2014. (19)
Note: You must provide reasons why amounts may be nil.
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