TAX3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2026 - DUE 4 September 2026

TAX3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2026 - DUE 4 September 2026; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.8.1..2.7.8..3.3.7.2... QUESTION 1 (40 marks/72 minutes) KG Manufacturing (Pty) Ltd (KGM) is a South African company located in Germiston, South Africa and manufactures a wide range on steel products. KGM’s year of assessment ends on 28 February 2026, is a registered VAT vendor and is a small business corporation as defined. All amounts stated excludes VAT, unless specifically stated otherwise. SARS has approved KGM’s process of manufacturing. The financial director has provided you with the following information for the year of assessment ended on 28 February 2026 to calculate the normal income tax liability for the 2026 year of assessment: 1. Sales amounted to R. This amount includes sales of R22 500 made to a client during the 2026 tax year who has been liquidated on 21 February 2026. 2. The cost of sales comprised the following: a. Opening stock on 1 March 2025 R (The market value is R). b. Purchases of raw material R c. Closing stock on 28 February 2026 R (The market value is R). 3. Salaries and wages consist of the following: • Salaries and wages of all staff members – R. • Medical aid contributions for all staff members – R251 325. • An annuity of R23 130 paid to the son of Mrs. T Mbete, who passed away on 2 June 2025. 4. Bad debts and doubtful debts • Refer to note 1 above regarding the client that was liquidated on 21 February 2026. • The doubtful debt allowance granted by SARS in the 2025 year of assessment amounted to R20 150. The list of doubtful debts on 28 February 2026 is TAX3701 ASSESSMENT 2 4 QUESTION 1 (continued) • R120 200. 60% of the list of doubtful debts on 28 February 2026 is in arrears for more than 90 days, but less than 120 days. KGM does not apply IFRS 9. 5. Restraint of trade payment KGM made a restraint of trade payment of R180 000 on 1 June 2025 to Mrs. T Ndou, the chief designer, who has resigned on 31 May 2025. Mrs Ndou is restricted for two years from the date of payment to compete with KGM. The full amount paid was taxable in the hands of Mrs. Ndou. 6. Learnership agreements KGM entered into the following learnership agreements: • On 1 June 2025 KGM entered into a learnership agreement with an employee with a NQF level 5 qualification for a period of 24-months. The employee has a disability as defined. The employee in still in the employment of KGM. • On 1 May 2024 KGM entered into a learnership agreement with an employee with a NQF level 8 qualification for a period of 18-months. The employee completed his training on 31 October 2025. 7. Legal expenses KGM incurred the following legal expenses during the 2026 tax year: • R9 250 paid to DC Attorneys for collecting outstanding trade debtors. • R2 530 paid to KA Attorneys for representing an employee in a domestic violence case. 8. Donations KGM made the following donations during the 2026 year of assessment: • R95 000 to Safe House, a Public Benefit Organisation (PBO), and the necessary section 18A tax certificate was received on 22 February 2026. • TAX3701 ASSESSMENT 2 5 QUESTION 1 (continued) • R2 750 to a local school. The school is not a registered public benefit organisation. 9. KGM paid the annual insurance of R240 000 for the period from 1 July 2025 to 30 June 2026 on 1 July 2025. 10. KGM has an assessed tax loss of R852 500 brought forward from the 2025 year of assessment. 11. KGM had the following non-current assets on 28 February 2026: • KGM purchased manufacturing machine XP second-hand on 1 April 2025 for an amount of R638 250 (including VAT) and brought it into use on 1 May 2025. For safety and insurance purposes KGM had to build a special foundation costing R52 500 to mount machine XP that was paid on 28 April 2025 to a contractor. • KGM purchased a new delivery truck at a total cost of R on 1 July 2025, and brough it into use on 1 August 2025. • On 1 December 2025, a delivery truck that was bought new on 1 August 2024 for a total cost of R862 500 (including VAT) and brought into use on the same date, was stolen during an armed robbery while delivering steel products to a client. On 2 January 2026, the insurer paid KGM an amount of R540 000. • KGM bought new computers for a total cost of R150 000 for the marketing office on 1 May 2023 and brought them into use on the same day. 12. KGM incurred the following rent related costs in 2026: • KGM signed a new lease agreement with Prop Holdings (Pty) Ltd on 1 August 2025 for a period of ten years with the option to extend the lease agreement for another three years. The monthly rent payable as from TAX3701 ASSESSMENT 2 6 QUESTION 1 (continued) 1 August 2025 is R25 250. KGM also paid a lease premium of R220 000 to Prop Holdings (Pty) Ltd on 1 August 2025. • In terms of the new lease agreement KGM had to make improvements to the existing factory building on the leased land. The leasehold improvements should at least be R. KGM started with the leasehold improvements on 1 September 2025 and completed the leasehold improvements on 31 January 2026 at a total cost of R and brought it into use on 1 February 2026. 13. KGM purchased part of an improvement to a new commercial building on 1 October 2025 for a total amount of R (including VAT) and brought it into use on 1 November 2025. The part of the improvement to the new commercial building acquired will be used by the human resources department of KGM. 14. Binding general ruling 7 provides for the following write-off periods: • Computer equipment – three years. • Delivery trucks – four years. 15. KGM received the following other income during the 2026 year of assessment: • Interest of R6 258 from South African banks. • Dividends of R63 690 from a foreign company. KGM only holds 6% of the equity shares in the foreign company. TAX3701 ASSESSMENT 2 7 REQUIRED MARKS Calculate the normal income tax liability for KG Manufacturing (Pty) Ltd for the year of assessment ended on 28 February 2026. Please provide reasons should any amount be excluded from gross income or not qualify as an income tax deduction. You can assume that KGM will make use of any permissible tax deduction to legally reduces it’s 2026 income tax liability. You may ignore any capital gains tax implications for the 2026 year of assessment. 40