TAX2601
Assignment 5
Semester 2 - 2023
Due date: 16 October 2023
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,CLIENT 1 (QUESTION 1) (23 marks)
Ubuntu Catering (Pty) Ltd (”UC”) is a manufacturer and supplier of commercial and industrial catering
equipment in South Africa. The company has one factory building situated in an industrial area of
Johannesburg and offices located in Woodmead Office Park, Johannesburg. The company is not a small
business corporation as defined in the Income Tax Act and its year of assessment ends on 31 March. The
tasks that you need to attend to relate to the taxable income calculation of the company for the year of
assessment ending 31 March 2023.
UC informed you that they have elected the section 11(o) scrapping allowance, where applicable, and also
the deferral of recoupments, where allowed. The company accountant supplied you with the below
incomplete wear and tear and capital allowances calculation relating to the company’s fixed assets
REQUIRED MARKS
a. List the questions you must ask the accountant about Asset UC1, to gather the
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necessary information to calculate the missing capital allowance.
b. Explain to the accountant what errors exist with the R180 000 capital allowance
calculation for the current year of assessment of Asset UC2 and why. Also explain how
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to correct each error. No calculation is required in your answer – marks will be allocated
for explanations only.
c. Calculate the capital allowance (if any), relating to the moving costs incurred to move
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asset UC3.
d. Calculate the correct wear & tear allowance for the current year of assessment and
any other tax consequences arising from the scrapping of the truck. Ensure you use
brackets to indicate amounts that must be deducted and no brackets for amounts that
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must be added in the taxable income calculation.
Note: UC informs you that non-manufacturing assets are written off using the binding
general ruling no.7, which allows three (3) years for heavy-duty trucks.
e. Calculate the capital allowances relating to Factory FF1 & FF2 for the current year of
assessment and any other tax consequences arising from the sale of Factory FF1.
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Ensure you use brackets to indicate amounts that must be deducted and no brackets
for amounts that must be added in the taxable income calculation.
, Question 1 (a): Calculating Missing Capital Allowance for Asset UC1
To calculate the missing capital allowance for Asset UC1, you will need to gather specific information
from the company accountant. Here are the questions you should ask to obtain the necessary
details:
1. Asset Description: Can you provide a detailed description of Asset UC1, including its type, purpose, and any relevant
specifications?
2. Date of Acquisition: What was the exact date when Asset UC1 was acquired by the company?
3. Purchase Price: What was the total purchase price or cost of Asset UC1 when it was acquired?
4. Installation and Transportation Costs: Did the company incur any additional costs related to the installation or
transportation of Asset UC1? If so, what were these costs?
5. Usage: How is Asset UC1 used in the business operations? Is it used in the manufacturing process or for some other
purpose?
6. Depreciation Method: What method of depreciation is being used for Asset UC1? Is it straight-line, reducing balance, or
some other method?
7. Previous Years’ Depreciation: What is the accumulated depreciation on Asset UC1 from previous years?
8. Improvements or Upgrades: Have there been any improvements or upgrades made to Asset UC1 since it was acquired?
If so, what were the costs associated with these improvements or upgrades?
9. Disposals or Sales: Has Asset UC1 been disposed of or sold during the year? If so, what were the details of this
transaction?
10. Residual Value: What is the estimated residual value of Asset UC1 at the end of its useful life?
11. Estimated Useful Life: What is the estimated useful life of Asset UC1 as per the company’s depreciation policy or
industry standards?
12. Depreciation Method: Which depreciation method is being used for Asset UC1 (e.g., straight-line, reducing balance, or
any other method)?
13. Current Accumulated Depreciation: What is the current accumulated depreciation for Asset UC1 up to the end of the
year of assessment on 31 March 2023?
14. Prior Years’ Depreciation: Can you provide the annual depreciation amounts claimed for Asset UC1 in prior years, if
applicable?
15. Any Prior Recoupments: Has the company ever claimed any recoupments related to Asset UC1 in previous years? If yes,
please provide details.
16. Any Improvements or Additions: Were there any significant improvements, additions, or enhancements made to Asset
UC1 during the year of assessment that need to be considered for the calculation?
17. Section 11(o) Scrapping Allowance: Was Asset UC1 ever scrapped or disposed of during the year of assessment? If so,
please provide details about the scrapping allowance claimed.
18. Deferral of Recoupments: Have any recoupments been deferred for Asset UC1 as allowed under Section 11(o)? If yes,
please provide information on the deferred recoupments.
19. Section 12C Allowance: Is Asset UC1 eligible for any Section 12C allowances, and if so, please provide the relevant
details?
20. Any Other Relevant Information: Is there any other information or circumstances related to Asset UC1 that could affect
the calculation of capital allowances for the year of assessment ending on 31 March 2023?
