Oct/Nov 2020 – Mock exam paper TAX3761 Taxation of Business Activities and Individuals

Oct/Nov 2020 – Mock exam paper TAX3761 Taxation of Business Activities and Individuals 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 business 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 otherwise 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 business 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