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TAX2601 Assignment 5 (COMPLETE ANSWERS) Semester 2 2023 - DUE 16 October 2023
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TAX2601 Assignment 5 (COMPLETE ANSWERS) Semester 2 2023 - DUE 16 October 2023
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TAX2601 Assignment 5 (COMPLETEANSWERS) Semester 2 2023 - DUE 16
October 2023
(QUESTION 1) (23 marks) Ubuntu Catering (Pty) Ltd (”UC”) is a
manufacturer and supplier of commercial and industrial catering equipment in
South Africa. The company has one factory building situated in an industrial
area of Johannesburg and offices located in Woodmead Office Park,
Johannesburg. The company is not a small business corporation as defined in
the Income Tax Act and its year of assessment ends on 31 March. The tasks that
you need to attend to relate to the taxable income calculation of the company for
the year of assessment ending 31 March 2023. UC informed you that they have
elected the section 11(o) scrapping allowance, where applicable, and also the
deferral of recoupments, where allowed. The company accountant supplied you
with the below incomplete wear and tear and capital allowances calculation
relating to the company’s fixed assets: Asset Capital/ wear & tear allowance
amount Additional information 1. Asset UC1 ? Information is missing 2. Asset
UC2 R180 000 Asset UC2 was purchased and brought into use on 1 October
2022 to manufacture steel baking trays. It was purchased for R900 000 from
another company that closed and sold their assets, which were all used in the
manufacturing process. The capital allowance calculated by the accountant for
this asset for the current year was: R900 000 x 40% x 6/12 = R180 000, which
is incorrect. 3. Asset UC3 R240 000 Asset UC3 is used in the process of
manufacturing commercial ovens. It was purchased new and brought into use on
1 July 2020 for R. When factory FF1 was sold (see number 5 below), special
transportation was arranged to move UC3 from factory FF1 to factory FF2 on
15 February 2023, at a cost of R48 000. The capital allowance calculated by the
, accountant for this asset for the current year was: R x 20% = R240 000, which
is correct. However, the moving costs have not been dealt with. 4
TAX2601/2023/Semester 2/Assessment 5 4. Asset TK1 R595 000 A heavy-duty
truck, used to deliver goods to customers, was purchased new and brought into
use on 1 July 2021 at a cost of R595 000. The truck was in an accident and was
scrapped on 1 December 2022. The company received an insurance payout of
R280 000. The accountant has shown the cost price of the truck as the wear &
tear allowance for the current year, which is incorrect. 5. Factory FF1 & FF2 ?
Factory FF1 was purchased and brought into use by UC on 3 November 2003
for R1 million. The factory was purchased from the previous owner who erected
the factory building in 1980 for R800 000. UC undertook major improvements
to the factory building which were completed and brought into use in April
2013 at a cost of R. On 1 February 2023, UC sold factory FF1 for R and
simultaneously purchased factory FF2 for R and brought it into use on the same
day. Assume the tax value of factory FF1 at the time of sale is R. The
accountant has not calculated any capital allowances or other tax consequences
regarding the two factory buildings for the current year of assessment.
REQUIRED MARKS a. List the questions you must ask the accountant about
Asset UC1, to gather the necessary information to calculate the missing capital
allowance. 4 b. Explain to the accountant what errors exist with the R180 000
capital allowance calculation for the current year of assessment of Asset UC2
and why. Also explain how to correct each error. No calculation is required in
your answer – marks will be allocated for explanations only. 5 c. Calculate the
capital allowance (if any), relating to the moving costs incurred to move asset
UC3. 2 d. Calculate the correct wear & tear allowance for the current year of
assessment and any other tax consequences arising from the scrapping of the
truck. Ensure you use brackets to indicate amounts that must be deducted and
no brackets for amounts that must be added in the taxable income calculation.
Note: UC informs you that non-manufacturing assets are written off using the
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