TAX3761 SOLUTION: MOCK EXAM – OCT/NOV 2020

SOLUTION: MOCK EXAM – OCT/NOV 2020 QUESTION 1 (30 marks) PART A (22 marks) Calculation of the normal tax liability of Barika (Pty) Ltd for the 2019 year of assessment. R R Service fees 1 890 000 Advertising (s11(a)) (23 000) (1) Salaries (s11(a)) (500 000) (1) Restraint of trade (s11(cA)) Lesser of: R400 000/2 or R400 000/3 (133 333) (2) Bad debts (s11(i)) (8 000) (1) Debtor allowance previous year (s11(j)) (R18 000 x 25%) 4 500 (1) Debtor allowance current year (s11(j)) (R25 000 x 25% x 90%) (5 625) (2) Rental paid (s11(a)) (R8 900 x 11) (97 900) (1) Leasehold improvement allowance (s11(g) and (h)) (R320 000/51 x 2) (12 549) (3) Legal expenses (s11(c)) Capital nature/Prohibited Nil (1) Service contracts IT support services Current: R110 000 x 4/12 (36 667) (1) Security services Current: R30 000 x 2/12 (5 000) (1) Prepaid expense (s23H) IT support services R110 000 x 8/12 (6 months) 73 333 (1) Security services R30 000 x 10/12 (6 months) 25 000 (1) R100 000 therefore Deductible 98 333 (98 333) Depreciation Furniture (s12E) R80 000 x 100/114 x 20% (14 035) (2) Computers (s12E) R65 000 x 30% (19 500