Question 1 [30]
Majuba (Pty) Ltd is a South African resident. It is a small business corporation that manufactures shoes. The company’s financial year ends on 28 February. Majuba (Pty) Ltd is a registered vat vendor and the company does not apply IFRS 9 for financial reporting purposes.
The following information is available for the year ended 29 February 2024 (all amounts exclude VAT unless otherwise stated):
| Income | Notes | R |
| Sales | 5050000 | |
| Dividend income | 1 | 80000 |
| Expenses and costs | ||
| Purchase of raw material on1 July 2023 | 2000000 | |
| Inventory | 2 | ? |
| Baddebts | 60000 | |
| Doubtful debts | 3 | ? |
| Salaries and wages | 4 | 880000 |
| Legalexpenses | 5 | 177000 |
| Patent acquired | 6 | 50000 |
| Repairsandmaintenance | 42000 | |
| Electricity | 7 | 49000 |
| Restraint of trade | 8 | 160000 |
| Computer costs(includingVAT) | 9 | 80500 |
| Machinery costs | 10 | ?seenote10 |
Notes:
1. The company received a dividend from a local investment company on
31 December 2023.
2. The cost price of the opening stock was R560 000 and the market value was R420 000 as on 1 March 2023. The cost price of the closing stock was R480 000 and the market value was R535 000 on 29 February 2024.
3. The list of doubtful debts as at 29 February 2024 amounted to R120 000 and 70% of the total amount have been in arrears for more than 120 days. The balance of the debtors have not been in arrears for more than 60 days. The doubtful-debt allowance by the Commissioner for the 2023 year of assessment, amounted to R42 000.
4. Salaries paid during the current year of assessment amounted to R790 000 and the company also contributed
R90 000 towards the provident fund on behalf of the company’s employees.
5. Legal expenses were incurred as follows:
– Drafting of lease contracts for the company amounting to R65 000.
– The balance of the expenses relate to collection of outstanding trade debtors.
6. Majuba (Pty) Ltd incurred an expense of R50 000 in acquiring a design on its trading merchandise.
7. The company paid the entire amount of electricity for the period 1 February 2024 to 31 August 2024.
8. The full payment was made to the former operations manager on 2 January 2024 for agreeing not to start a business in South Africa within a period of four years.
9. Due to the expansion of the business, the company purchased four computers during October 2023 for immediate use by the finance department. The taxpayer elects the 50:30:20 write-off that pertains to other assets in terms of section
12E.
10. On 1 February 2023, Majuba (Pty) Ltd acquired a new manufacturing machine from the United States which was brought into use on 3 May 2023. The cost of the machine was US$45 000. The company settled the purchase price in full on 1 June 2023. No other costs were incurred on the machine and no forward exchange contract was entered into.
The spot rates are as follows:
1 February 2023 $1 = R17.00
28 February 2023 $1 = R17.50
3 May 2023 $1 = R17.80
1 June 2023 $1 = R18.00
Required:
Calculate in detail Majuba (Pty) Ltd.’s tax liability for the year ended 29 February 2024.
Show all workings and full explanations where applicable.
Answers to Above Questions on Financial Accounting
Answer 1: Majuba (Pty) Ltd.’s tax liability for the year ended 29 February 2024 is calculated as follows:
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