Principles of Taxation
TAX2601
Department of Taxation
Mock exam
Semester 01 & 02 2022
QUESTION 1 (30 marks, 36 minutes)
Guitar Hero (Pty) Ltd is not a small business corporation as defined in the Income
Tax Act. The company manufactures all kinds of musical instruments, including guitars,
pianos and drums and it sells these instruments to one retailer in South Africa, namely
Music Moods CC. Guitar Hero (Pty) Ltd’s financial year ends on 31 March. The
accountant requested you to calculate the company’s income tax liability for the year of
assessment ended 31 March 2050. The following information is provided to you:
1. Sales to Music Moods CC amounted to R6 865 000.
2. A donation of R150 000 was made to Lifeline, a registered public benefit
organization. The relevant section 18A receipt was obtained.
3. The company purchased raw materials amounting to R3 650 500 and also paid a
transport company R8 600 to deliver the stock to its premises.
4. Guitar Hero created a new computer program that would simplify the manufacture
process. Re-search and development expenses incurred in developing the computer
program amounted to R375 000 and were incurred on 1 May 2049. Salaries paid to
research staff amounted to R98 000 and were also incurred on the same date.
Approval was obtained from the Minister, as well as the Department of Science and
Technology for the development of the computer program on 15 April 2049.
5. Bad debts written off during the year of assessment amounted to R58 960.
6. The following table relates to the list of doubtful debts (all these debts are older than
60 days but less than 120 days old):
, 01/04/2048 – 31/03/2049 01/04/2049 – 31/03/2050
List of doubtful debts R R
112 000 97 000
7. The following information relates to the fixed assets:
• On 1 August 2048 the company purchased a range of new furniture for R36 000 for
the distribution office. On 1 October 2049, the company relocated to a new
distribution office and the furniture was moved on the same date. Moving costs
amounted to R15 000.
• The old furniture was only sold on 1 August 2049 to a second-hand dealer for R18
000. This old furniture was originally purchased for R25 000 on 1 July 2048.
• Guitar Hero (Pty) Ltd purchased two manufacturing machines on 1 July 2049.
Manufacturing machine A was bought new for R220 000 and manufacturing
machine B was bought second-hand for R125 000.
• On 1 May 2049, the company purchased five new apartments in a residential
building in Cape Town at a cost of R650 000 each. The company rented these
apartments out at R3 500 each per month from 1 May 2049, solely for trade
purposes.
8. Guitar Hero (Pty) Ltd paid an amount of R110 000 on 1 January 2050 to the local
municipality for water and electricity for the period 1 January 2050 to 31 December
2050.
9. The following employee expenses were paid:
• Salaries and wages ………………………………….……………...… R1 200 000
• Contribution to medical aid fund in respect of all employees .….… R 155 000
• Leave pay provision………..…………………………….…...….….… R 540 000
10. On 1 February 2050, there was a robbery at the distribution office and five guitars
with a cost price of R5 500 each were stolen (these items were not deducted yet as
part of trading stock or production costs). In an attempt to recover the stolen items,
the company paid a bribe of R1 500 to a security officer to try and find the culprits.
The insurance company paid an amount of R20 000 to Guitar Hero (Pty) Ltd for the
theft of the guitars.
11. Additional information
Binding general ruling No. 7 allows for the following write-off periods for assets (where
applicable):
, • Furniture and fittings 6 years
Guitar Hero (Pty) Ltd has elected to use the section 11(o) scrapping allowance, where
applicable.
REQUIRED: MARKS
Calculate the tax liability of Guitar Hero (Pty) Ltd for the year of 30
assessment ended on 31 March 2050.
Answer:
TAX2601
Department of Taxation
Mock exam
Semester 01 & 02 2022
QUESTION 1 (30 marks, 36 minutes)
Guitar Hero (Pty) Ltd is not a small business corporation as defined in the Income
Tax Act. The company manufactures all kinds of musical instruments, including guitars,
pianos and drums and it sells these instruments to one retailer in South Africa, namely
Music Moods CC. Guitar Hero (Pty) Ltd’s financial year ends on 31 March. The
accountant requested you to calculate the company’s income tax liability for the year of
assessment ended 31 March 2050. The following information is provided to you:
1. Sales to Music Moods CC amounted to R6 865 000.
2. A donation of R150 000 was made to Lifeline, a registered public benefit
organization. The relevant section 18A receipt was obtained.
3. The company purchased raw materials amounting to R3 650 500 and also paid a
transport company R8 600 to deliver the stock to its premises.
4. Guitar Hero created a new computer program that would simplify the manufacture
process. Re-search and development expenses incurred in developing the computer
program amounted to R375 000 and were incurred on 1 May 2049. Salaries paid to
research staff amounted to R98 000 and were also incurred on the same date.
Approval was obtained from the Minister, as well as the Department of Science and
Technology for the development of the computer program on 15 April 2049.
5. Bad debts written off during the year of assessment amounted to R58 960.
6. The following table relates to the list of doubtful debts (all these debts are older than
60 days but less than 120 days old):
, 01/04/2048 – 31/03/2049 01/04/2049 – 31/03/2050
List of doubtful debts R R
112 000 97 000
7. The following information relates to the fixed assets:
• On 1 August 2048 the company purchased a range of new furniture for R36 000 for
the distribution office. On 1 October 2049, the company relocated to a new
distribution office and the furniture was moved on the same date. Moving costs
amounted to R15 000.
• The old furniture was only sold on 1 August 2049 to a second-hand dealer for R18
000. This old furniture was originally purchased for R25 000 on 1 July 2048.
• Guitar Hero (Pty) Ltd purchased two manufacturing machines on 1 July 2049.
Manufacturing machine A was bought new for R220 000 and manufacturing
machine B was bought second-hand for R125 000.
• On 1 May 2049, the company purchased five new apartments in a residential
building in Cape Town at a cost of R650 000 each. The company rented these
apartments out at R3 500 each per month from 1 May 2049, solely for trade
purposes.
8. Guitar Hero (Pty) Ltd paid an amount of R110 000 on 1 January 2050 to the local
municipality for water and electricity for the period 1 January 2050 to 31 December
2050.
9. The following employee expenses were paid:
• Salaries and wages ………………………………….……………...… R1 200 000
• Contribution to medical aid fund in respect of all employees .….… R 155 000
• Leave pay provision………..…………………………….…...….….… R 540 000
10. On 1 February 2050, there was a robbery at the distribution office and five guitars
with a cost price of R5 500 each were stolen (these items were not deducted yet as
part of trading stock or production costs). In an attempt to recover the stolen items,
the company paid a bribe of R1 500 to a security officer to try and find the culprits.
The insurance company paid an amount of R20 000 to Guitar Hero (Pty) Ltd for the
theft of the guitars.
11. Additional information
Binding general ruling No. 7 allows for the following write-off periods for assets (where
applicable):
, • Furniture and fittings 6 years
Guitar Hero (Pty) Ltd has elected to use the section 11(o) scrapping allowance, where
applicable.
REQUIRED: MARKS
Calculate the tax liability of Guitar Hero (Pty) Ltd for the year of 30
assessment ended on 31 March 2050.
Answer:
