Cool Breeze $($Pty$)$ Ltd $($Coolb$),$ registered South African Company, specialises in the manufacture and supply of air conditioners. $($SARS approved manufacturing process$)$ Coolb has a $28$ February year$-$end. CoolB is registered for VAT.

CoolB recently hired a new accountant who prepared the following tax calculations:

$$

R

Profit before tax

R$523000$

Donations $$ to shareholder

$($R$2000)$

Bad debts provision CY $($excl VAT$)$

$($R$250000)$

Bad debts provision PY $($excl VAT$)$

R$150000$

Bad debts recovered $($excl VAT$)$

R$45000$

Net effect of s$11($j$)($excl VAT$)$

$($R$90000)$

Interest $**$

$($R$30000)$

$$

$**$ Interest of R$30000$ could have been earned on an investment. However, CoolB decided to use the spare funds to purchase shares in a company listed on the JSE instead.

Which of the following statements is true?

Question $9$Answer

a$.$

Only donations to registered PBOs and a company$$s shareholders are deductible for tax.

b$.$

The interest that could have been earned if the funds were invested represents a loss of income for the taxpayer. The loss was incurred due to the company purchasing shares instead. The loss of possible interest that could have been is deductible in terms of s$11($a$).$

c$.$

Bad debts recovered should be recorded in the statement of profit or loss including VAT.

d$.$

Bad debt provisions are not deductible for tax and therefore the current year provision should be added back and the prior year deducted. The accountant has incorrectly accounted for the bad debt provision.

e$.$

The starting point of any tax calculation for a company is net profit.