TAX3701
Assignment 2
(COMPLETE
ANSWERS)
Semester 1 2024
(798141) - DUE
19 April 2024
, QUESTION 1 (40 marks, 72 minutes) Crystal (Pty) Ltd (“Crystal”) is a South
African resident company with a 31 March financial year end. The company is
a leading manufacturer and distributor of float glass, laminated glass, and
various mirror products to customers in and outside South Africa. Crystal is
registered as a category A vendor for Value-Added Tax (VAT) purposes and is
not a Small Business Corporation as defined in section 12E of the Income Tax
Act no.58 of 1962. The South Africa Revenue Service (SARS) recognises
Crystal’s manufacturing processes as approved processes of manufacture. All
amounts exclude VAT unless stated otherwise. The following income and
expenditure statement was prepared by Crystal’s accountant for the financial
year ended 31 March 2024: Notes Amount (R) Income Revenue 1 3 450 000
Cost of sales 2 (887 500) Investment income 3 312 300 Expenditure
Depreciation expense 4 (427 640) Payment to Mrs Van Louw 5 (240 000) Net
profit before tax 2 207 160 Notes: 1. Revenue from sales made to customers
situated outside South Africa amounted to R1 034 000. This amount is not yet
accounted for in the above income and expenditure statement. 2. The cost of
sales amount was determined as follows: R Opening
stock…………………………………….. 404 000
Purchases…………………………………………. 725 000 Closing
stock……………………………………… (241 500) Cost of
sales………………………………………. 887 500 The accountant was
uncertain on how to account for the closing stock. On 31 March 2024, it was
found that some of the closing stock items were damaged to an extent that it
would be unethical for Crystal to distribute them at discounted selling prices.
These closing stock items are included in the above closing stock figure at a
total cost of R41 800. 3. During the 2023 financial year, Crystal embarked on
a quest to diversify its investments. Below is a summary of the returns earned
on the company’s individual investments for the 2024 financial year: • Total
interest earned on the company’s only fixed deposit account amounted to R75
000. • Equity shares held in Nexus Works Ltd, a South African resident
company, yielded dividends amounting to R140 000. • Dividends amounting to
R53 200 were received in respect of the 15% interest held in the equity shares
and voting rights of Aurora Innovations, a company based in Sweden. • The
5% interest held in the equity shares and voting rights of Equinox Industries, a
manufacturing company effectively managed in France, yielded dividends
amounting to R44 100. 4. The depreciation expense relates to the following
assets: Asset Acquisition date Purchase price (R) Notes Sebenza building 1
June 2014 R1 520 000 4.1 Specialised delivery truck ?? ?? 4.2 Patent 12
Assignment 2
(COMPLETE
ANSWERS)
Semester 1 2024
(798141) - DUE
19 April 2024
, QUESTION 1 (40 marks, 72 minutes) Crystal (Pty) Ltd (“Crystal”) is a South
African resident company with a 31 March financial year end. The company is
a leading manufacturer and distributor of float glass, laminated glass, and
various mirror products to customers in and outside South Africa. Crystal is
registered as a category A vendor for Value-Added Tax (VAT) purposes and is
not a Small Business Corporation as defined in section 12E of the Income Tax
Act no.58 of 1962. The South Africa Revenue Service (SARS) recognises
Crystal’s manufacturing processes as approved processes of manufacture. All
amounts exclude VAT unless stated otherwise. The following income and
expenditure statement was prepared by Crystal’s accountant for the financial
year ended 31 March 2024: Notes Amount (R) Income Revenue 1 3 450 000
Cost of sales 2 (887 500) Investment income 3 312 300 Expenditure
Depreciation expense 4 (427 640) Payment to Mrs Van Louw 5 (240 000) Net
profit before tax 2 207 160 Notes: 1. Revenue from sales made to customers
situated outside South Africa amounted to R1 034 000. This amount is not yet
accounted for in the above income and expenditure statement. 2. The cost of
sales amount was determined as follows: R Opening
stock…………………………………….. 404 000
Purchases…………………………………………. 725 000 Closing
stock……………………………………… (241 500) Cost of
sales………………………………………. 887 500 The accountant was
uncertain on how to account for the closing stock. On 31 March 2024, it was
found that some of the closing stock items were damaged to an extent that it
would be unethical for Crystal to distribute them at discounted selling prices.
These closing stock items are included in the above closing stock figure at a
total cost of R41 800. 3. During the 2023 financial year, Crystal embarked on
a quest to diversify its investments. Below is a summary of the returns earned
on the company’s individual investments for the 2024 financial year: • Total
interest earned on the company’s only fixed deposit account amounted to R75
000. • Equity shares held in Nexus Works Ltd, a South African resident
company, yielded dividends amounting to R140 000. • Dividends amounting to
R53 200 were received in respect of the 15% interest held in the equity shares
and voting rights of Aurora Innovations, a company based in Sweden. • The
5% interest held in the equity shares and voting rights of Equinox Industries, a
manufacturing company effectively managed in France, yielded dividends
amounting to R44 100. 4. The depreciation expense relates to the following
assets: Asset Acquisition date Purchase price (R) Notes Sebenza building 1
June 2014 R1 520 000 4.1 Specialised delivery truck ?? ?? 4.2 Patent 12
