Exam (elaborations)
TAX1501
- Course
- TAX 2601 (TAX1501)
- Institution
- University Of South Africa (Unisa)
Exam of 121 pages for the course TAX 2601 at Unisa (TAX)
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QUESTION 1 (20 marks, 24 minutes)Skhothana (Pty) Ltd (Skhothana) is a South African company that imports luxury fashion
clothing brands from overseas to resell locally. Skhothana is registered for Value-Added Tax
(VAT) on the invoice basis and has a two-month tax period. The following amounts relate to
receipts and payments for the two-month period ending 31 March 2014.
Where applicable, all amounts are exclusive of VAT, unless otherwise stated.
Receipts Notes R
Cash sales 150 000
Credit sales 490 000
Rentals 1 140 400
Loan from Qhoma bank 2 100 000
Equity contributions from shareholders 2 150 000
Indemnity payment 3 80 000
Payments
Import of stock 4 300 000
Purchase of land 5 100 000
Sundry payments 6 32 490
Notes:
1. Rentals
Skhothana has excess floor space in its commercial buildings that it let to aspiring local
designers. The rentals received from the designers amounted to R62 400 for the two-month
period and constituted 8% of the total revenue of the company.
As part of its remuneration package, the company lets residential accommodation to its
employees at a discount to market value. The amount received for the period was R78 000
and makes up 10% of the total revenue of the company.
2. Loan from Qhoma Bank
In March 2014, Skhothana opened two new stores locally. To finance the expansion, the
company acquired a loan of R100 000 from Qhoma Bank and received equity contributions
of R150 000 from the company’s shareholders.
3. Indemnity payment
On 6 March 2014, a fire broke out at the Johannesburg branch and stock valued at R80 000
was destroyed. The insurance company indemnified the company with a cash payment of
R80 000 (inclusive of VAT).
4. Import of stock
On 28 February 2014, Skhothana imported the Ska-Vela brand of shoes from Italy. The
cost price and value for customs duty purposes was R300 000. Import surcharges of
R2 400 were levied. The date reflected on the Customs Billing of Entry is 4 March 2014.
,QUESTION 1 (continued)
5. Purchase of land
Skhothana purchased a second-hand building from a non-vendor for a consideration equal
to R100 000. The property was paid for in full and registered on 6 March 2014. The open
market value on the date of registration was R120 000.
6. Sundry payments comprise of the following amounts inclusive of VAT:
R
Fuel cost 14 250
Bank charges 7 410
Maintenance costs 5 700
Insurance premium 3 990
Subscription fees 1 140
The fuel costs, bank charges and maintenance costs relate to the import business as well
as the property rental business. The insurance premium and subscription fees only relate to
the import business.
The subscription fees are for the purchase of international magazines and membership with
fashion trend forecasting agencies to ensure that the company stocks up on the latest
trends.
REQUIRED: Marks
Calculate the VAT payable by or refundable to Skhothana (Pty) Ltd for the
two-month tax period ending 31 March 2014. 20
Note: Where an amount is nil, please indicate and provide a brief reason.
,QUESTION 2 (40 marks, 48 minutes)
Part A (35 marks, 42 minutes)
Drum Rum (Pty) Ltd is not a small business corporation as defined and carries on business as a
liquor manufacturer. The company operates mainly in South Africa and sells most of its liquor
products on credit to liquor retailers in South Africa and neighbouring countries. The company
is a registered vendor for VAT purposes and its year of assessment ends on 28 February 2014.
All amounts exclude VAT, unless otherwise stated.
The company has a taxable income of R6 758 631 before the following information has been
taken into account:
R
1. Export sales – cash 750 352
2. Dividends received – South African companies 13 750
3. Imported liquor ingredients used in the manufacturing process 588 535
4. Inventory at cost – 1 March 2013 291 250
Inventory at market value – 1 March 2013 289 750
5. Inventory at cost – 28 February 2014 319 760
Inventory at market value – 28 February 2014 325 753
6. Bad debts written off during the 2014 year of assessment 75 205
7. List of doubtful debts at 28 February 2014 105 250
8. List of doubtful debts at 28 February 2013 85 725
9. Personnel costs:
- Incentive bonuses to all employees 350 000
- Contributions to the pension fund on behalf of employees. The 135 250
Commissioner has approved a remuneration of R2 000 000 for the
purposes of pension fund contributions.
10. Legal expenses incurred:
- Legal cost relating to collecting outstanding debtors 8 500
- Legal cost paid on behalf of one of the company’s directors re- 1 500
garding a private issue
11. Advertising costs incurred:
- Cost of advertising a vacant post in the Weekly Cape Mail 4 580
- Cost of erecting a billboard close to the BR International Airport in 35 600
Botswana
12. Drum Rum (Pty) Ltd purchased the following capital assets:
A new brewing manufacturing machine B was purchased on
31 December 2013 at a total cost of R350 000 and was brought into use
on the same date. Installation costs for machine B amounted to R14 250
(including VAT).
, QUESTION 2 (continued)
R
A second hand delivery vehicle was purchased on 30 June 2013 at a total
cost of R125 000 to deliver the liquor products of Drum Rum (Pty) Ltd to
its clients. Owing to technical problems, the delivery vehicle was only
brought into use on 1 September 2013.
A new manufacturing building was erected on 30 April 2009 and brought
into use on 31 July 2009 at a total cost of R1 650 000. The building
houses the whole liquor manufacturing process of Drum Rum (Pty) Ltd.
13. Drum Rum (Pty) Ltd received a sudden demand for one of its flagship
products and was forced to look for additional manufacturing space. Bliss
CC was approached and a lease agreement was signed on 1 July 2013,
with a monthly rental payable of R15 000 as from 1 July 2013 for a period
of five years with the option to extend the lease period for another five
years. The lease agreement stipulated that Drum Rum (Pty) Ltd had to
make leasehold improvements of at least R550 000 and had to pay a
lease premium of R90 000. The lease premium was paid on 1 July 2013
and the leasehold improvements commenced on 1 August 2013 and were
completed on 1 December 2013. The total cost of the leasehold improve-
ments was R600 000 and the improvements was brought into use on
1 January 2014.
14. Drum Rum (Pty) Ltd sold a technologically outdated manufacturing ma-
chine on 1 February 2014 for R15 000. It was originally bought second
hand on 30 April 2011 for R100 000 and brought into use on the same
day. The company has elected a section 11(o) scrapping allowance.
15. The following costs were incurred relating to patents and trademarks:
- Renewal of patent J on 1 August 2013 8 500
- Purchase a new trademark on 31 December 2013 65 000
16. Drum Rum (Pty) Ltd entered into an agreement with Label Brew, the for-
mer brew master, on 31 December 2013, the date on which he resigned,
and paid him an amount of R580 000 as a restraint of trade payment for a
period of five years. The agreement was effective from 1 January 2014
and the R580 000 was paid on 15 January 2014, only R550 000 of which
was taxable in the hands of Label Brew for the 2014 year of assessment.
17. Drum Rum (Pty) Ltd donated R50 000 on 18 December 2013 to “Men in
Orange” a public benefit organisation and received a section 18A income
tax certificate on 31 January 2014.
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