Bridal Showers (Pty) Limited, a Namibian registered company, is involved in the manufacture and selling of household
Question:
Bridal Showers (Pty) Limited, a Namibian registered company, is involved in the manufacture and selling of household appliances. The company moved to new premises during its 2020 year of assessment (which ends on 28 February 2020) as its previous premises had become too small for its operations. The company has made a net taxable profit for normal tax purposes for the year amounting to N$320 00 before taking into account the following expenses and deductions:
1. On 1 March 2019, the directors of Bridal Showers Limited (entered into a lease agreement with a taxpayer whereby they would lease a light industrial site from him for twenty years. The agreement provided for an initial premium of N$30 000 to be paid on the commencement of the lease which was signed on 1 March 2019, and a monthly rental of N$1 000 to be increased by N$200 a month after every completed year of the lease, and a clause stating that Bridal Showers (Pty) Limited was obliged to erect a factory on the leased site at a cost of N$1160 000. The factory was completed at a cost of N$1 260 000 on 31 October 2019 and production therein commenced on 1 November 2019.
2. The directors decided when they moved into the new factory they would sell a machine that manufactured single beds as the demand for these was nonexistent. The machine which was out of date was sold to a scrap-metal dealer for N$200. Its tax value at the date of sale was N$1 600.
3. On a portion of the leasehold property was a dilapidated house. This house was demolished and the area was converted into a parking area for the company’s customers. The expenses of demolishing the house amounted to N$2 600.
4. A teller was caught with her “finger in the till” and was “encouraged” to resign. The auditors established that N$600 was missing from the taking for the month. No recovery has been made.
5. A salesman had borrowed N$850 from the company and after repaying half the loan had vanished and has not been heard of since. The loan was interest free.
6. A firm of attorneys was engaged to recover the balance of the loan from the salesman. Although they had not recovered any of the money they had billed Bridal Showers (Pty) Limited N$260 in respect of costs incurred to date.
7. On 1 December 2019 a driver of its delivery van ran down a customer when delivering goods. In terms of the court order, Bridal Showers (Pty) Limited had to pay compensation and damages amounting to N$7 200 to the customer.
8. An advocate was paid the sum of N$8 800 for his services relating to the above case. This amount included all the costs of the court.
9. As a result of the accident the driver retired on account of ill health. The company, which does not have a practice of making these payments, pays the driver a monthly amount of N$900. The first payment was made in January 2019.
10. In January 2019 the company staged an “Appliance Extravaganza.” The cost of this exhibition amounted to N$10 600.
REQUIRED
Calculate Bridal Showers (Thy) Limited’s normal tax liability for its year of assessment, which ended on 28 February 2020.
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty