FAC3701 Assignment 1
(COMPLETE ANSWERS)
Semester 2 2024 - DUE 23 August
2024
100% GUARANTEED
,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.
To analyze the financial information related to TopStyle Ltd for the year ended 30 June 2023, we
need to break down the relevant components, specifically depreciation on the administration
building, and the treatment of security expenses.
1. Depreciation on Administration Building
Cost of the Administration Building: R1,500,000
Date Available for Use: 1 October 2021
Estimated Useful Life: 15 years
Residual Value: Rnil
, Depreciation Method: Straight-line
Depreciation Calculation:
Annual Depreciation = Cost−Residual ValueUseful Life\frac{\text{Cost} - \
text{Residual Value}}{\text{Useful Life}}Useful LifeCost−Residual Value
Annual Depreciation = R1,500,00015=R100,000\frac{R1,500,000}{15} =
R100,00015R1,500,000=R100,000 per year
Since the building was available for use from 1 October 2021, the depreciation expense for the
first year (2021/2022) will be prorated:
Depreciation for 2021/2022 (9 months from 1 October 2021 to 30 June 2022):
o Depreciation = R100,000×912=R75,000R100,000 \times \frac{9}{12} =
R75,000R100,000×129=R75,000
For the year ended 30 June 2023:
Full year's depreciation = R100,000
2. Security Expenses
Security Services by Independent Company:
o Payment: R80,000
o Period Covered: 1 January 2022 to 31 December 2022
o Portion of payment relating to the 2022/2023 financial year (1 July 2022 to 31
December 2022):
R80,000 ×\times× 612\frac{6}{12}126 = R40,000
Security Services by In-House Staff:
o Payment: R30,000
o Period Covered: 1 January 2023 to 30 June 2023
3. Adjustments to Profit Before Tax
We will adjust the profit before tax by adding back non-deductible expenses (such as
depreciation, since SARS doesn't allow a tax allowance on the building) and subtracting any
prepaid or accrued expenses.
Profit Before Tax: R2,800,000
Add Back Non-Deductible Depreciation:
Depreciation Expense: R100,000
Adjusted Profit Before Tax = R2,800,000 + R100,000 = R2,900,000
(COMPLETE ANSWERS)
Semester 2 2024 - DUE 23 August
2024
100% GUARANTEED
,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.
To analyze the financial information related to TopStyle Ltd for the year ended 30 June 2023, we
need to break down the relevant components, specifically depreciation on the administration
building, and the treatment of security expenses.
1. Depreciation on Administration Building
Cost of the Administration Building: R1,500,000
Date Available for Use: 1 October 2021
Estimated Useful Life: 15 years
Residual Value: Rnil
, Depreciation Method: Straight-line
Depreciation Calculation:
Annual Depreciation = Cost−Residual ValueUseful Life\frac{\text{Cost} - \
text{Residual Value}}{\text{Useful Life}}Useful LifeCost−Residual Value
Annual Depreciation = R1,500,00015=R100,000\frac{R1,500,000}{15} =
R100,00015R1,500,000=R100,000 per year
Since the building was available for use from 1 October 2021, the depreciation expense for the
first year (2021/2022) will be prorated:
Depreciation for 2021/2022 (9 months from 1 October 2021 to 30 June 2022):
o Depreciation = R100,000×912=R75,000R100,000 \times \frac{9}{12} =
R75,000R100,000×129=R75,000
For the year ended 30 June 2023:
Full year's depreciation = R100,000
2. Security Expenses
Security Services by Independent Company:
o Payment: R80,000
o Period Covered: 1 January 2022 to 31 December 2022
o Portion of payment relating to the 2022/2023 financial year (1 July 2022 to 31
December 2022):
R80,000 ×\times× 612\frac{6}{12}126 = R40,000
Security Services by In-House Staff:
o Payment: R30,000
o Period Covered: 1 January 2023 to 30 June 2023
3. Adjustments to Profit Before Tax
We will adjust the profit before tax by adding back non-deductible expenses (such as
depreciation, since SARS doesn't allow a tax allowance on the building) and subtracting any
prepaid or accrued expenses.
Profit Before Tax: R2,800,000
Add Back Non-Deductible Depreciation:
Depreciation Expense: R100,000
Adjusted Profit Before Tax = R2,800,000 + R100,000 = R2,900,000
