Liquid Research Ltd (LRL) conducts testing and research related to all forms of liquids. The company...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Liquid Research Ltd (LRL) conducts testing and research related to all forms of liquids. The company has a 31 March year-end. In the 2019 year of assessment, LRL entered into a research and development contract with FIN Ltd, a financing group company of a major oil and gas group, to find more efficient ways to extract the potential gas supply at the group's Brulpadda site. As the gas supply is in deep waters that experience high seas and rough weather, the extraction mechanism must be resilient. The contract value is R100,000,000 with payment spread over two years. In addition, certain costs incurred by LRL are reimbursed by FIN Ltd, such as exploration visits to potential drilling locations. Costs reimbursed the 2019 year of assessment amounted to R13,000,000. LRL's other costs in connection with the contract include the following: - scientific staff at R20,000,000 per annum. - research equipment at an initial investment of R19,000,000.- administrative staff at a cost of R8,000,000 per annum; and quality control staff costs at R5,000,000 per annum. Both LRL and FIN Ltd are residents of South Africa. LRL is not connected to FIN Ltd or any other customer. Required: (a) Explain how the R100,000,000 contract income for Liquid Research Ltd (LRL) will be treated for tax purposes and whether any tax relief is available. (b) Calculate the taxable income of LRL in respect of the contract with FIN Ltd for the 2019 year of assessment. Cº Liquid Research Ltd (LRL) conducts testing and research related to all forms of liquids. The company has a 31 March year-end. In the 2019 year of assessment, LRL entered into a research and development contract with FIN Ltd, a financing group company of a major oil and gas group, to find more efficient ways to extract the potential gas supply at the group's Brulpadda site. As the gas supply is in deep waters that experience high seas and rough weather, the extraction mechanism must be resilient. The contract value is R100,000,000 with payment spread over two years. In addition, certain costs incurred by LRL are reimbursed by FIN Ltd, such as exploration visits to potential drilling locations. Costs reimbursed the 2019 year of assessment amounted to R13,000,000. LRL's other costs in connection with the contract include the following: - scientific staff at R20,000,000 per annum. - research equipment at an initial investment of R19,000,000.- administrative staff at a cost of R8,000,000 per annum; and quality control staff costs at R5,000,000 per annum. Both LRL and FIN Ltd are residents of South Africa. LRL is not connected to FIN Ltd or any other customer. Required: (a) Explain how the R100,000,000 contract income for Liquid Research Ltd (LRL) will be treated for tax purposes and whether any tax relief is available. (b) Calculate the taxable income of LRL in respect of the contract with FIN Ltd for the 2019 year of assessment. Cº
Expert Answer:
Answer rating: 100% (QA)
A The R100000000 contract income for Liquid Research Ltd LRL will be treated as taxable income for t... View the full answer
Related Book For
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler
Posted Date:
Students also viewed these databases questions
-
A company sells health insurance policies. The company has a large sales force comprised of independent contractors. Some of its sales agents, usually after a significant period of service, are...
-
The company has a marginal tax rate if 40 percent. a study of publicly held companies in this line of business suggests that the required return on equity is about 17 percent. The company's debt is...
-
to test golf balls the company has a golf pro hit balls at a driving range what is the probability that the average of 10 balls will exceed 2912 assuming the mean is still
-
Consider the energy sector consisting of J firms where energy producers are characterized by their cost functions C j (x j ,e j ). The firms are subject to an emission trading system with a total...
-
Adam Singh, D.D.S., opened an incorporated dental practice on January 1, 2012. During the first month of operations the following transactions occurred: 1. Performed services for patients who had...
-
Show that the point of contact of any tangent line to a hyperbola is midway between the points in which the tangent intersects the asymptotes.
-
Assume your U.S. firm currently exports to Mexico on a monthly basis. The goods are priced in pesos. Once material is received from a source, it is quickly used to produce the product in the United...
-
Frank makes deposits into his savings account of $225 at the beginning of every three months. Interest earned by the deposits is 3% compounded quarterly. (a) What will the balance in Franks account...
-
Bank of America Corporation issued $7 billion in preferred stock to raise capital. The company reported the following financial data: Preferred Stock Issuance: $7 billion Total Assets: $2.4 trillion...
-
Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21- 3434) have a 19-year-old son (born 10/2/99 Social Security...
-
Exercise 26-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product...
-
Briefly explain why CAPM includes only the systematic risk (beta risk) while ignoring the unsystematic risk.
-
Explain the evolution of contemporary cognitive psychology 2. evaluate the major theoretical and biological underpinnings of human perception, attention, memory, reasoning, language, and learning 3....
-
The total daily cost (in dollars) of producing a mountain bikes is given by C(x)=994+8x+ 0.11 . The average cost function C (x) decreases until x = c and increases afterwards. If the goal of the...
-
1. Michael Kimathi has purchased a tractor for $96,250. He expects to receive a net cash flow of $29,250 per year from the investment. What is the payback period for Michael? Round your answer to two...
-
8 (a) Show that the curves "a" cosmo and "a" sin me cut each other orthogonally. + y b (b) If a tangent to the ellipse a b in T and t, prove that + =1 CT2 Cr = 1, with centre C, meets the major and...
-
Greco Lake Resort reported the following on its balance sheet at December 31, 2018: (Click the icon to view the partial balance sheet.) Requirements (Click the icon to view additional information.)...
-
What are the before image (BFIM) and after image (AFIM) of a data item? What is the difference between in-place updating and shadowing, with respect to their handling of BFIM and AFIM?
-
Describe the nature of the evidence the tax auditor will use in the audit of Jones Co. Ltd's tax return.
-
Bancroft Corporation has an internal audit department operating out of head office. Various types of audit assignments are performed by the department for the eight divisions of the company. The...
-
Niosoki Auto Parts sells new parts for foreign cars to car dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment, the...
-
Identify several nonquantitative factors that are apt to play a decisive role in the final selection of projects for capital expenditures.
-
In what way does depreciation affect the analysis of cash flows for a proposed capital expenditure?
-
Why are the net present value and the internal rate of return models superior to the payback period and the accounting rate of return models?
Study smarter with the SolutionInn App