Grasshopper (Pty) Ltd (Grasshopper), a resident of the Republic of South Africa, manufactures garden furniture. Grasshopper's...

   

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Grasshopper (Pty) Ltd ("Grasshopper"), a resident of the Republic of South Africa, manufactures garden furniture. Grasshopper's Financial Director presented you with the following information for the company's current year of assessment (ended on 28 February 2022): Gross profit Water and electricity Rental for the factory premises two months in advance Insurance premiums Salaries and wages Administrative expenses Provision for doubtful debts Depreciation Profit before tax Notes 1 2 3 456 R 4 321 670 (230 567) (300 000) (108 000) (1 245 600) (24 000) (125 000) (456 131) 1 832 372 Notes 1. Grasshopper (Pty) Ltd entered into a new lease agreement for its factory premises on 1 March 2021. The agreement stipulates that Grasshopper (Pty) Ltd must pay the rent two months in advance on the 25th of each month. 2. The insurance premiums have been paid. They consist of the following: Loss of profits insurance Fire and storm insurance for its factory building and equipment R90 000 R18 000 3. On 1 March 2021 Grasshopper entered into a twelve-month registered learnership agreement with Thabo Jones which has an NQF level 6 qualification. Thabo, who is physically disabled, obtained an NQF level 7 qualification on 1 September 2021 and successfully completed the learnership by the end of February 2022. This learnership agreement has been registered with the relevant education sector and training authority established under section 9(1) of the Skills Development Act 97 of 1988 (titles and codes have been allocated and issued by the Director-General: ANNEXURE F: FORMATIVE ASSESSMENT 1 Department of Labour). No recording was done in Grasshopper's books for this transaction. 4. Administrative expenses include the following: Legal expenses for the collection of irrecoverable debts Speeding fines that the directors consider to be a normal business expense Cash donation to the University of Pretoria Bursary Fund (a section 18A receipt was obtained) R7 000 R5 000 5. The qualifying outstanding debtor's balance for the current year of assessment is R150 000 and the qualifying outstanding debtor's balance for the previous year of assessment was R180 000. 6.2. R12 000 6.) The property, plant, and equipment below relate to depreciation expense: 6.1. Grasshopper (Pty) Ltd conducts qualifying technological research and development activities relating to the growing and nurturing of plants'. The research activities were approved by the Department of Science and Technology. Operating expenses for the 2022 year of assessment were R350 000. New and unused research machines used in the research activities were purchased on 30 June 2021 for R700 000. They were brought into use on the same date. 6.3. On 1 April 2021 Grasshopper (Pty) Ltd started to erect a commercial building. This commercial building cost R3 300 000 to erect and was completed on 31 January 2022. As of 1 February 2022, it was occupied by Grasshopper's administrative employees. On 1 November 2021, a newly imported machine was purchased by Grasshopper (Pty) Ltd to be used to manufacture garden chairs. It was purchased for the equivalent of R55 000 (cash cost). It was brought into use on 1 January 2022. Customs and excise duty paid on it was R4 500. A further R2 000 was incurred on transport. It cost R3 500 to install the new machine. REQUIRED: Calculate, with references to the relevant sections of the Income Tax Act where applicable, the taxable income of Grasshopper (Pty) Ltd for the 2022 year of assessment. Start with the profit before tax. Round to the nearest Rand. Exclude all capital gains tax calculations and ignore any VAT implications. Competency Framework Reference: E1.3 c) Application of tax legislation to calculate tax obligation (40 marks) Apply the relevant law to the facts, determine the tax position and compute the tax payable (VAT or normal tax) for individuals and companies. Grasshopper (Pty) Ltd ("Grasshopper"), a resident of the Republic of South Africa, manufactures garden furniture. Grasshopper's Financial Director presented you with the following information for the company's current year of assessment (ended on 28 February 2022): Gross profit Water and electricity Rental for the factory premises two months in advance Insurance premiums Salaries and wages Administrative expenses Provision for doubtful debts Depreciation Profit before tax Notes 1 2 3 456 R 4 321 670 (230 567) (300 000) (108 000) (1 245 600) (24 000) (125 000) (456 131) 1 832 372 Notes 1. Grasshopper (Pty) Ltd entered into a new lease agreement for its factory premises on 1 March 2021. The agreement stipulates that Grasshopper (Pty) Ltd must pay the rent two months in advance on the 25th of each month. 2. The insurance premiums have been paid. They consist of the following: Loss of profits insurance Fire and storm insurance for its factory building and equipment R90 000 R18 000 3. On 1 March 2021 Grasshopper entered into a twelve-month registered learnership agreement with Thabo Jones which has an NQF level 6 qualification. Thabo, who is physically disabled, obtained an NQF level 7 qualification on 1 September 2021 and successfully completed the learnership by the end of February 2022. This learnership agreement has been registered with the relevant education sector and training authority established under section 9(1) of the Skills Development Act 97 of 1988 (titles and codes have been allocated and issued by the Director-General: ANNEXURE F: FORMATIVE ASSESSMENT 1 Department of Labour). No recording was done in Grasshopper's books for this transaction. 4. Administrative expenses include the following: Legal expenses for the collection of irrecoverable debts Speeding fines that the directors consider to be a normal business expense Cash donation to the University of Pretoria Bursary Fund (a section 18A receipt was obtained) R7 000 R5 000 5. The qualifying outstanding debtor's balance for the current year of assessment is R150 000 and the qualifying outstanding debtor's balance for the previous year of assessment was R180 000. 6.2. R12 000 6.) The property, plant, and equipment below relate to depreciation expense: 6.1. Grasshopper (Pty) Ltd conducts qualifying technological research and development activities relating to the growing and nurturing of plants'. The research activities were approved by the Department of Science and Technology. Operating expenses for the 2022 year of assessment were R350 000. New and unused research machines used in the research activities were purchased on 30 June 2021 for R700 000. They were brought into use on the same date. 6.3. On 1 April 2021 Grasshopper (Pty) Ltd started to erect a commercial building. This commercial building cost R3 300 000 to erect and was completed on 31 January 2022. As of 1 February 2022, it was occupied by Grasshopper's administrative employees. On 1 November 2021, a newly imported machine was purchased by Grasshopper (Pty) Ltd to be used to manufacture garden chairs. It was purchased for the equivalent of R55 000 (cash cost). It was brought into use on 1 January 2022. Customs and excise duty paid on it was R4 500. A further R2 000 was incurred on transport. It cost R3 500 to install the new machine. REQUIRED: Calculate, with references to the relevant sections of the Income Tax Act where applicable, the taxable income of Grasshopper (Pty) Ltd for the 2022 year of assessment. Start with the profit before tax. Round to the nearest Rand. Exclude all capital gains tax calculations and ignore any VAT implications. Competency Framework Reference: E1.3 c) Application of tax legislation to calculate tax obligation (40 marks) Apply the relevant law to the facts, determine the tax position and compute the tax payable (VAT or normal tax) for individuals and companies.

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