This paper consists of 18 pages including 4 pages for rough work (pp.15-18), plus Appendix A
(pp.i-iv), (interest tables) and instructions for the completion of a mark reading sheet.
INSTRUCTIONS:
SECTION A: Answer all 20 multiple choice questions on the mark reading sheet.
SECTION B: Answer all long questions using the space provided below the question.
No rough work will be marked.
Pg.4
, lOMoARcPSD|8436517
SECTION A (20 MARKS)
Use the information provided below to answer Questions 1 to 4.
Selby Industries is considering replacing its existing machine which was purchased 3 years ago at a cost
of R1 million. The machine is depreciated at 20% per annum and can be sold today at R200 000. The
new machine will cost R750 000 with R20 000 installation cost and R5 000 transportation costs. The use
of the new machine will decrease the working capital by R7 000.
Assume a 29% capital gains tax.
1. Calculate the book value of the existing machine.
1. R200 000
2. R400 000
3. R640 000
4. R800 000
2. Calculate the tax implication from the sale of the existing machine.
1. R 58 000 tax liability
2. R 58 000 tax benefit
3. R160 000 tax liability
4. R160 000 tax benefit
3. Calculate the after-tax proceeds from the sale of the existing machine.
1. R258 000
2. R640 000
3. R840 000
4. R920 000
4. Calculate the initial investment associated with the replacement of the existing machine.
1. R 18 750
2. R 25 750
3. R510 000
4. R577 000
5. What is the most common motive for adding fixed assets to the firm?
1. Renewal
2. Expansion
3. Replacement
4. Transformation
Use the following information to answer questions 6 & 7.
Running Free Ltd is considering the following investment projects:
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Tutor23. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R53,77. You're not tied to anything after your purchase.