UNIVERSITY EXAMINATIONS
Oct/Nov 2020 – Mock exam paper
TAX3761
Taxation of Business Activities and Individuals
100 Marks
Duration 3 Hours
This paper consists of nine (9) pages plus the annexure A (p i).
IMPORTANT INSTRUCTIONS:
Assumptions:
1. All amounts exclude Value-Added Tax (VAT) unless specifically stated otherwise.
2. The VAT rate changed from 14% to 15% on 1 April 2018.
3. All persons mentioned are residents of the Republic of South Africa unless stated otherwise.
4. SARS = South African Revenue Service.
The answering of this paper:
1. This paper consists of four (4) questions.
2. All questions must be answered.
3. Each question must be commenced on a new (separate) page.
4. All workings, where applicable, must be shown. Where an amount is subject to a limitation,
clearly indicate the application of the limitation. Where any item is exempt from tax or not
allowable as a deduction, this must specifically be indicated, and a short reason should be
provided. All amounts must be rounded to the nearest Rand.
5. Please complete the cover page of the answer book in full.
6. You are reminded that answers may NOT be written in pencil.
7. Proposed timetable:
(As far as possible, try not to deviate from this timetable):
Question Subject Marks Minutes
1 Company tax and capital gains tax 30 54
2 Discussion of tax consequences 20 36
3 Net normal tax, Employees' tax 34 61
4 Provisional tax, Estate duty, Trusts 16 29
TOTAL 100 180
, 2
QUESTION 1 (30 marks, 54 minutes)
This question comprises two independent parts, namely Part A and Part B.
PART A (22 marks, 39 minutes)
Barika (Pty) Ltd (“Barika”) is a recruitment agency, specialising in locating young entrepreneurs in rural
areas. Their main business focus on Gauteng and the surrounding areas. The company is a small busi-
ness corporation as defined in the Income Tax Act and its financial year ends on the last day of December.
Barika is a registered VAT vendor making only taxable supplies. All amounts exclude VAT, unless other-
wise stated.
You are provided with a list of income and expenses of Barika for the financial year ending on
31 December 2019:
Description Note Amount
Income R
Service fees 1 890 000
Expenses
Advertising 1 (23 000)
Salaries (500 000)
Restraint of trade 2 (450 000)
Bad debts 3 (8 000)
Lease payments 4 ?
Legal expenses 5 (13 000)
Service contracts 6 (140 000)
Depreciation 7 (33 000)
Notes:
1. Advertising
Barika paid an amount of R23 000 to an advertising company to create posters to advertise its busi-
ness to local entrepreneurs.
2. Restraint of trade
Barika made a restraint of trade payment of R450 000 to one of their lead recruiters, Mr Chauke, on
31 August 2019. Mr Chauke was restrained from competing with the company for two years from
the date of the payment. Only R400 000 will constitute ‘income’ as defined in the hands of Mr
Chauke.
3. Bad debts
Year-end Trade debtors Bad debts Total of doubtful
debts
2019 R320 000 R8 000 R25 000
2018 R240 000 R4 000 R18 000
2017 R290 000 R5 000 R20 000
The company does not apply IFRS 9 accounting standards and 90% of the doubtful debts have been
in arrears for more than 60 days, but not more than 120 days. An allowance for doubtful debts were
allowed by SARS in the previous year of assessment.
, 3 TAX3761/201
QUESTION 1 (continued)
4. Lease payments
Barika entered into a lease contract with RENT (Pty) Ltd to occupy an office building from
1 February 2019 for a period of five years (Refer to note 6).
The lease agreement stipulates the following:
- Rental per month of R8 900; and
- Barika is obliged to effect leasehold improvements of R340 000 to the office building.
The leasehold improvements commenced on 1 March 2019 and were completed at a total cost of
R320 000 on 31 October 2019. The improvements were brought into use on 31 October 2019.
5. Legal expenses
The legal costs have been incurred for drawing up the lease contract (Refer to note 4).
6. Service contracts
Barika made the following payments:
Payment date Description Amount For services to be rendered for the
following period:
1 September 2019 IT support services R110 000 1/09/2019 to 31/08/2020
1 November 2019 Security services R 30 000 1/11/2019 to 31/10/2020
7. Depreciation
The depreciation relates to the following assets:
• Second-hand furniture purchased for R80 000 (including VAT) on 15 June 2017.
• New computers for the company were purchased for a total value of R65 000 on 1 September 2018
from a non-vendor.
Binding General Ruling No. 7 makes provision for the following write-off periods:
• Computer…………………………………………………………. 3 years
• Furniture………………………………………………………….. 6 years
Additional information:
The company made a first provisional tax payment of R40 000 on 30 June 2019 and a second provisional
tax payment of R35 000 on 31 December 2019 in respect of the 2019 year of assessment.
REQUIRED: MARKS
Calculate the normal income tax liability of Barika (Pty) Ltd for the 2019 year of assessment. 22
Oct/Nov 2020 – Mock exam paper
TAX3761
Taxation of Business Activities and Individuals
100 Marks
Duration 3 Hours
This paper consists of nine (9) pages plus the annexure A (p i).
IMPORTANT INSTRUCTIONS:
Assumptions:
1. All amounts exclude Value-Added Tax (VAT) unless specifically stated otherwise.
2. The VAT rate changed from 14% to 15% on 1 April 2018.
3. All persons mentioned are residents of the Republic of South Africa unless stated otherwise.
4. SARS = South African Revenue Service.
The answering of this paper:
1. This paper consists of four (4) questions.
2. All questions must be answered.
3. Each question must be commenced on a new (separate) page.
4. All workings, where applicable, must be shown. Where an amount is subject to a limitation,
clearly indicate the application of the limitation. Where any item is exempt from tax or not
allowable as a deduction, this must specifically be indicated, and a short reason should be
provided. All amounts must be rounded to the nearest Rand.
5. Please complete the cover page of the answer book in full.
6. You are reminded that answers may NOT be written in pencil.
7. Proposed timetable:
(As far as possible, try not to deviate from this timetable):
Question Subject Marks Minutes
1 Company tax and capital gains tax 30 54
2 Discussion of tax consequences 20 36
3 Net normal tax, Employees' tax 34 61
4 Provisional tax, Estate duty, Trusts 16 29
TOTAL 100 180
, 2
QUESTION 1 (30 marks, 54 minutes)
This question comprises two independent parts, namely Part A and Part B.
PART A (22 marks, 39 minutes)
Barika (Pty) Ltd (“Barika”) is a recruitment agency, specialising in locating young entrepreneurs in rural
areas. Their main business focus on Gauteng and the surrounding areas. The company is a small busi-
ness corporation as defined in the Income Tax Act and its financial year ends on the last day of December.
Barika is a registered VAT vendor making only taxable supplies. All amounts exclude VAT, unless other-
wise stated.
You are provided with a list of income and expenses of Barika for the financial year ending on
31 December 2019:
Description Note Amount
Income R
Service fees 1 890 000
Expenses
Advertising 1 (23 000)
Salaries (500 000)
Restraint of trade 2 (450 000)
Bad debts 3 (8 000)
Lease payments 4 ?
Legal expenses 5 (13 000)
Service contracts 6 (140 000)
Depreciation 7 (33 000)
Notes:
1. Advertising
Barika paid an amount of R23 000 to an advertising company to create posters to advertise its busi-
ness to local entrepreneurs.
2. Restraint of trade
Barika made a restraint of trade payment of R450 000 to one of their lead recruiters, Mr Chauke, on
31 August 2019. Mr Chauke was restrained from competing with the company for two years from
the date of the payment. Only R400 000 will constitute ‘income’ as defined in the hands of Mr
Chauke.
3. Bad debts
Year-end Trade debtors Bad debts Total of doubtful
debts
2019 R320 000 R8 000 R25 000
2018 R240 000 R4 000 R18 000
2017 R290 000 R5 000 R20 000
The company does not apply IFRS 9 accounting standards and 90% of the doubtful debts have been
in arrears for more than 60 days, but not more than 120 days. An allowance for doubtful debts were
allowed by SARS in the previous year of assessment.
, 3 TAX3761/201
QUESTION 1 (continued)
4. Lease payments
Barika entered into a lease contract with RENT (Pty) Ltd to occupy an office building from
1 February 2019 for a period of five years (Refer to note 6).
The lease agreement stipulates the following:
- Rental per month of R8 900; and
- Barika is obliged to effect leasehold improvements of R340 000 to the office building.
The leasehold improvements commenced on 1 March 2019 and were completed at a total cost of
R320 000 on 31 October 2019. The improvements were brought into use on 31 October 2019.
5. Legal expenses
The legal costs have been incurred for drawing up the lease contract (Refer to note 4).
6. Service contracts
Barika made the following payments:
Payment date Description Amount For services to be rendered for the
following period:
1 September 2019 IT support services R110 000 1/09/2019 to 31/08/2020
1 November 2019 Security services R 30 000 1/11/2019 to 31/10/2020
7. Depreciation
The depreciation relates to the following assets:
• Second-hand furniture purchased for R80 000 (including VAT) on 15 June 2017.
• New computers for the company were purchased for a total value of R65 000 on 1 September 2018
from a non-vendor.
Binding General Ruling No. 7 makes provision for the following write-off periods:
• Computer…………………………………………………………. 3 years
• Furniture………………………………………………………….. 6 years
Additional information:
The company made a first provisional tax payment of R40 000 on 30 June 2019 and a second provisional
tax payment of R35 000 on 31 December 2019 in respect of the 2019 year of assessment.
REQUIRED: MARKS
Calculate the normal income tax liability of Barika (Pty) Ltd for the 2019 year of assessment. 22
