,TAX2601 Assignment 1 (COMPLETE ANSWERS)
Semester 1 2025 - DUE 7 April 2025 ;100% trusted,
comprehensive and complete reliable solution with clear
explanation
Mr Xhumalo lives in Gqeberha, South Africa. He manufactures
and sells various grass baskets and placemats from a street stall.
Due to the high demand for his products, he concluded a sales
agreement with a well-known houseware retailer in South
Africa. In terms of the agreement, the retailer will purchase R25
000 worth of products from Mr Xhumalo on 15 February 2025
on credit. The goods must be manufactured and delivered by 15
March 2025, with payment scheduled for 31 March 2025. The
agreement clearly states that Mr Xhumalo will only become
entitled to payment once he has delivered the goods.
Mr Xhumalo’s accountant is uncertain in which year of
assessment the R25 000 must be declared for tax purposes and
contacted you for advice.
REQUIRED
MARKS
Discuss whether the R25 000 of the sale will constitute gross
income in the hands of Mr Xhumalo for the 2025 year of
assessment.
Note:
• You can support the main issue in the question with relevant
case law from the module's prescribed case law.
12
, Discussion: Taxation of Mr Xhumalo's Sale in the 2025 Year
of Assessment
In terms of South African tax law, the recognition of income for
tax purposes is generally guided by the Income Tax Act and its
definition of gross income under Section 1, as well as the
principles of accrual accounting. Specifically, the question here
pertains to when Mr Xhumalo must declare the R25 000 from
the sale of goods to the retailer for tax purposes.
Key Principles for Determining Gross Income:
The South African tax system follows the accrual basis of
accounting, which means that income is typically recognized
when it is earned and becomes due and payable, regardless of
when actual payment is received. This principle is in contrast to
the cash basis of accounting, where income is only recognized
when it is actually received.
Section 1 of the Income Tax Act defines gross income as:
"The total amount, in cash or otherwise, received by or
accrued to the taxpayer during the year of
assessment…"
For income to be included in gross income, it must meet two
conditions:
1. It must be received or become due and payable to the
taxpayer.
2. It must be earned in that particular tax year.
Semester 1 2025 - DUE 7 April 2025 ;100% trusted,
comprehensive and complete reliable solution with clear
explanation
Mr Xhumalo lives in Gqeberha, South Africa. He manufactures
and sells various grass baskets and placemats from a street stall.
Due to the high demand for his products, he concluded a sales
agreement with a well-known houseware retailer in South
Africa. In terms of the agreement, the retailer will purchase R25
000 worth of products from Mr Xhumalo on 15 February 2025
on credit. The goods must be manufactured and delivered by 15
March 2025, with payment scheduled for 31 March 2025. The
agreement clearly states that Mr Xhumalo will only become
entitled to payment once he has delivered the goods.
Mr Xhumalo’s accountant is uncertain in which year of
assessment the R25 000 must be declared for tax purposes and
contacted you for advice.
REQUIRED
MARKS
Discuss whether the R25 000 of the sale will constitute gross
income in the hands of Mr Xhumalo for the 2025 year of
assessment.
Note:
• You can support the main issue in the question with relevant
case law from the module's prescribed case law.
12
, Discussion: Taxation of Mr Xhumalo's Sale in the 2025 Year
of Assessment
In terms of South African tax law, the recognition of income for
tax purposes is generally guided by the Income Tax Act and its
definition of gross income under Section 1, as well as the
principles of accrual accounting. Specifically, the question here
pertains to when Mr Xhumalo must declare the R25 000 from
the sale of goods to the retailer for tax purposes.
Key Principles for Determining Gross Income:
The South African tax system follows the accrual basis of
accounting, which means that income is typically recognized
when it is earned and becomes due and payable, regardless of
when actual payment is received. This principle is in contrast to
the cash basis of accounting, where income is only recognized
when it is actually received.
Section 1 of the Income Tax Act defines gross income as:
"The total amount, in cash or otherwise, received by or
accrued to the taxpayer during the year of
assessment…"
For income to be included in gross income, it must meet two
conditions:
1. It must be received or become due and payable to the
taxpayer.
2. It must be earned in that particular tax year.
