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:
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