FAC3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 - DUE 23 August 2024

FAC3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 - DUE 23 August 2024 TopStyle Ltd is a manufacturer and retailer of smartphone accessories. TopStyle Ltd was incorporated on 1 July 2021. The profit before tax for the year ended 30 June 2023 amounted to R2 800 000, after taking into account the information below: 1. Administration building The administration building was acquired on 1 October 2021 at a cost of R1 500 000 and on this date, it was available for use, as intended by management. Depreciation on the administration building is written off over its estimated useful life of 15 years according to the straight-line method. A residual value of Rnil was allocated to the administration building. The SA Revenue Service does not allow a tax allowance on the administration building. No other administration buildings were acquired or sold during the year. On 20 December 2021 TopStyle Ltd made a payment of R80 000 to an independent security company, for security services to be rendered at the administration building for the period from 1 January 2022 to 31 December 2022. The directors of TopStyle Ltd decided to employ their own full time security staff from 1 January 2023. TopStyle Ltd paid security fees of R30 000 to their own security staff for the period 1 January 2023 to 30 June 2023. 2. Delivery vehicles The directors of TopStyle Ltd decided to replace the old delivery vehicles, used to distribute their smartphone accessories, with hybrid delivery vehicles to decrease their operating costs. On 1 January 2023 the old delivery vehicles were sold for R320 000. The old delivery vehicles were acquired on 1 October 2021 at a cost of R300 000 and on this date, they were available for use, as intended by management. On 30 June 2022 the carrying amount and tax base of the old delivery vehicles amounted to R262 500 and R243 750 respectively. On the date of sale, the carrying amount and tax base of the old delivery vehicles amounted to R237 500 and R206 250 respectively. On 3 January 2023 the new hybrid delivery vehicles were acquired for R600 000 and on this date, they were available for use, as intended by management. No other delivery vehicles were acquired or sold during the year. Depreciation on delivery vehicles is written off over its estimated useful life of 6 years according to the straight-line method. A residual value of R80 000 was allocated to the new hybrid delivery vehicles (old delivery vehicles: Rnil). The wear and tear allowance on delivery vehicles is written off over 4 years, apportioned for part of a year, according to the straight-line method, in terms of section 11(e) of the Income Tax Act. The tax allowance on the old delivery vehicles and the new hybrid delivery vehicles for the year ended 30 June 2023 amounted to R37 500 and R75 000 respectively. During the current financial year TopStyle Ltd paid various traffic fines for traffic violations committed by the company’s vehicle drivers, for which the company is liable for. The total traffic fines paid for the current financial year amounted to R9 800. 3.