Exam (elaborations)
MNE2601Exam pack
- Course
- MNE2601 EXAM PACK
- Institution
- University Of South Africa
Exam of 147 pages for the course MNE2601 EXAM PACK at University of South Africa (MNE2601Exam pack)
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TAX3701 EXAM PACK 2022[School]
[Course title]
,-3-
UNIVERSITY EXAMINATIONS
September-November 2021
TAX3701
Taxation of Business Activities
100 Marks
Duration 3 Hours
This paper consists of seven (8) pages
IMPORTANT INSTRUCTIONS:
Assumptions:
1. All amounts exclude Value-Added Tax (VAT) unless specifically stated otherwise.
2. The VAT rate changed from 14% to 15% on 1 April 2018.
3. All persons mentioned are residents of the Republic of South Africa unless stated
otherwise.
4. SARS = South African Revenue Service.
The answering of this paper:
1. This paper consists of five (5) questions.
2. All questions must be answered.
3. Each question must be commenced on a new (separate) page.
4. All workings, where applicable, must be shown. Where an amount is subject to a
limitation,
clearly indicate the application of the limitation. Where any item is exempt from tax or not
allowable as a deduction, this must specifically be indicated, and a short reason should
be
provided. All amounts must be rounded to the nearest Rand.
5. Please complete the cover page of the answer book in full.
6. You are reminded that answers may NOT be written in pencil.
7. Proposed timetable:
(As far as possible, try not to deviate from this timetable):
Question Topic Marks Minutes
1 Company income tax liability 30 54
2 Provisional tax and dividends tax 25 45
3 Value-Added Tax (VAT) 20 36
4 Capital gains tax 20 36
5 General deduction formula 5 9
TOTAL 100 180
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TAX3701
Sept – Nov 2021
-4-
QUESTION 1 (30 marks, 54 minutes)
Pharma Clinic (Pty) Ltd (“Pharma”) is a company that manufactures and sells
pharmaceutical products to
local and other African country customers. The company is based in Potchefstroom, South
Africa. Pharma
is a registered category B VAT vendor, making 100% taxable supplies and has a financial year
that ends
,on the last day of June each year. Pharma is not a ”small business corporation” as defined in
section
12E(4) of the Income Tax Act. SARS approves the manufacturing of pharmaceutical products
as a process
of manufacture.
Pharma concludes transactions with registered VAT vendors only, unless otherwise stated.
Where relevant,
Pharma is in possession of valid tax invoices, unless otherwise stated or the context indicates
otherwise.
All amounts exclude VAT, unless otherwise stated.
During the financial year ended 30 June 2021, the financial accountant of Pharma calculated
the preliminary
taxable income to be R6 980 000, before taking the following transactions into account:
1. Sales
1.1 Total sales to local customers for the financial year amounted to R14 470 352 has been
taken into
account in the calculation of the preliminary taxable income as stated above.
1.2 On 28 June 2021, a customer in Namibia made an enquiry and a quotation for
pharmaceutical products
valued at R400 000 was given to the customer. The order was placed by the customer for the
products on 1 July and the goods valued at R400 000, were only delivered to the customer on 5
July
2021 and invoiced on 6 July 2021. The customer settled the debt on 30 July 2021 (this amount
is
not included in the sales amount in 1.1 above).
2. Cost of sales
The cost of sales was calculated as follows:
R
Opening stock (at cost price) 1 842 014
Plus: Purchases of raw materials 8 856 454
Less: Closing stock (at cost price) (927 879)
Cost of sales 9 770 589
The market value of the opening stock and closing stock was R1 658 987 and R1 120 000
respectively.
3. Employees’ cost
Employees cost for financial year ended on 30 June 2021 consisted of the following:
R
Salaries and wages 1 200 000
Employer’s contributions to provident
fund for the benefit of employees
120 000
Provision for leave pay 70 000
Total 1 390 000
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, TAX3701
Sept – Nov 2021
-5-
QUESTION 1 (continued)
4. Lease agreement
Pharma entered into an agreement with Property Rentals (Pty) Ltd for the lease of its land on 1
August
2020. The lease is for a period of 20 years. In terms of the lease agreement, Pharma is obliged
to erect
an administrative building on the land to the value of R1 500 000 and is obliged to pay a
monthly lease
payment of R15 000 for the use of the land. Pharma completed the construction of the
administrative
building on 1 April 2021 at a cost of R1 700 000 and it was brought into use on the same day.
5. Investment income
Investment income consists of local interest of R35 000 and dividends of R64 000 in respect of
a 40%
holding in Ciskor Ltd (a South African company). A declaration and written undertaking for
exemption was
submitted by Pharma to Ciskor Ltd.
In addition, dividends received (gross before any withholding tax) from a foreign company,
Addida Plc (a
company that is incorporated and effectively managed in Spain) of R245 000 (correctly
converted to South
African rand). Pharma holds 8% interest in Addida Plc and Addida Plc is listed on the
Johannesburg Stock
Exchange. The shareholding refers to equal interest in equity shares and voting rights.
6. Prize won
Pharma won a prize of R500 000 in the annual South African Pharmaceutical Awards in
recognition of the
company’s outstanding contribution to the field of pharmaceutical practice and science.
7. Donation of trading stock
During the financial year ended 30 June 2021, Pharma donated pharmaceutical products (blood
pressure,
diabetes and hypertension medication) to an old age home, Legae-La-Bagodi, a registered
Public Benefit
Organisation (PBO). The cost of manufacturing the stock was R22 000 (this was correctly taken
into
account in the calculation of e the preliminary taxable income amount) and Pharma would have
sold the
products for R27 500. Pharma received a valid tax receipt for the donation.
8. Legal fees
Pharma incurred legal fees amounting to R150 000 of which R50 000 was paid to the attorney
that was
following up on Pharma's outstanding debtor balances and the other R100 000 was incurred to
collect
long-outstanding staff loans.
9. Assets held
Pharma owned the following assets at the start of the 2021 financial year (all assets were
brought into use
on the same date of purchase):
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