Exam (elaborations)
TAX2601 ASSIGNMENT 4 SEMESTER 1 2023
- Institution
- University Of South Africa
TAX2601 ASSIGNMENT 4 SEMESTER 1 2023
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TAX2601Assignment 4
Semester 1
2023
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OCTOBER/NOVEMBER 2017
(Q1)
SMILEY (PTY) LTD
Calculation of taxable income for the year of assessment ending 31 March 2017
R
-Cash sales 375 000
-Credit sales 4 600 000
-Purchases of inventory 2 940 000
-Local dividends (exempt) nil
-Opening inventory (880 000)
-Closing inventory 620 000
-Salaries and wages (480 000)
-Pension fund contributions (48 000)
-Wear and tear: manufacturing machine AB (section 12E, deducted in full) (325 000)
-Delivery vehicle (section 12E, 30% x 70 000) no apportionment (21 000)
-Manufacturing building (section 13(1) erected after 1 January 1989, 5% is used,
5% x 1 700 000) (85 000)
-manufacturing machine BC, claimed in full in 2014 year of assessment (section 12E) nil
-Recoupment on manufacturing machine BC
Proceeds 30 000
Tax value (nil)
Cost 120 000
Accumulated wear and tear (120 000) 30 000
-Bad debts (9 000)
-Doubtful debt allowance, 2016 year of assessment 17 000
-Doubtful debt allowance, 2017 year of assessment (25% x 84 000) (21 000)
-Renewal of trademark (9 000)
-Acquisition of trademark (not allowed as deduction) nil
-Registration of trademark (65 000)
-Legal costs (prohibited, non-trade expenditure) nil
-Advertising costs (2 500)
TAXABLE INCOME BEFORE DONATIONS 756 500
-Donation, 100 000 (section 18A) limited to 10% of 756 500 (75 650) (75 650)
TOTAL TAXABLE INCOME 680 850
Income tax liability = 59 150 + 28% (680 850-550 000)
= 95 788
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(Q2)
LOCKER (PTY) LTD
Calculation of taxable income for the year of assessment ending 31 March 2017
R
-Taxable income before additional adjustments 6 750 000
-Interest accrued in respect of credit sales 250 000
-wear and tear: 2 small items (less than 7 000, deducted in full) (5 000)
-wear and tear (section 12C) manufacturing machine 1 purchased second hand
(20% x 460 000) (92 000)
-wear and tear (section 12C) manufacturing machine 2 purchased new (40% x 700 000) (280 000)
-wear and tear (section 13(1)) manufacturing building two (5 500 000-900 000) x 5% (230 000)
-Repairs to damaged roof (section 11d) (125 000)
-Wear and tear: under cover parking area (section 11e) (200 000/5) x8/12 (26 667)
-wear and tear (section 11e) vehicles (180 000/5 )x 5/12 (15 000)
-wear and tear: building 5 (section 13 quat) purchased new from the developer
Only 55% of the cost can be used (55% x 3 000 000) x 8% (132 000)
-wear and tear: furniture (section 11e) 42 000/6 (7 000)
-scrapping allowance (calc 1) (18 250)
-insurance: actually incurred (200 000 x 3/12) (50 000)
: prepaid (3/12 x 200 000) 150 000, more than 100 000 and relate to a period
More than 6 months (not deductible) nil
-research and development costs (since all costs were incurred after the date of
application for approval, 150% will be used 150% x (95 000+ 80 000) (262 500)
-bank costs (2 000)
-rental costs (70 000)
-packing material (10 000)
TAXABLE INCOME 5 674 583
Calculations for Q2
(1) Proceeds 15 000
Less tax value (33 250)
Cost 42 000
Accumulated wear and tear:
2016(42 000/6) x 3/12 (1 750)
2017 (42 000/6) (7 000)
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(Q3) PART A
(a) Tax value of manufacturing machine
Cost 860 000
Accumulated wear and tear (516 000)
Tax value 344 000
(b) Recoupment on manufacturing machine
Proceeds 910 000
Less tax value (344 000)
Recoupment 566 000
The recoupment is limited to the accumulated wear and tear of 516 000
So the recoupment is 516 000
(c) Adjusted proceeds
Proceeds 910 000
Less recoupment (516 000)
Adjusted proceeds 394 000
(d) Base cost
Cost 860 000
Less accumulated wear and tear (516 000)
Base cost 344 000
(e) Capital gain/ (loss)
Adjusted proceeds 394 000
Base cost (344 000)
Capital gain 50 000
(f) Base cost of office building
Acquisition cost 2 260 000
Transfer costs 80 000
Base cost 2 340 000
(g) Capital gain/ (loss) on office building
Proceeds 2 700 000
Less base cost (2 340 000)
Capital gain 360 000
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