Munchies and Granolas Ltd (a resident company) manufactures different brands of break-fast cereals in the Republic....

 

  

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Munchies and Granolas Ltd (a resident company) manufactures different brands of break-fast cereals in the Republic. The company is registered for VAT purposes. The following preliminary income statement of the company for the financial year 1 November 2021 to 30 September 2022 is at your disposal. All amounts exclude VAT, unless stated otherwise. Sales Less: Cost of sales Gross profit (taxable) Add: Other income Interest received Profit on sale of asset Income Less: Operating expenses Repairs and moving costs Depreciation Leasehold improvements and related expenses Bad debts-trade debtors Salaries and wages Scientific research expenditure Trade mark Other tax-deductible expenditure Net profit before tax R 282 500 200 (107 400 300) 175 099 900 15 160 000 2 500 000 180 759 900 (165 370 815) 3 445 000 29 248 256 4 23 620 000 125 000 5 33 344 759 61 705 000 7 38 800 96 844 000 15 389 085 Notes: Note 1: Munchies and Granolas Ltd earned interest on investments at local financial institutions. Note 2: Profit on sale of fixed asset and depreciation provided: Machine B (with a tax value of Rnil) was sold for R360 000 (less than the original cost) on 30 November 2021 to a non- connected party. • Manufacturing machine C (new) was purchased on 1 June 2022 for R2 500 000 (including all related qualifying costs). and brought into use on 1 July 2022 in the new industrial building in Cape Town. ● ● The industrial (factory) building was erected in Gauteng during 2008 at a total cost of R20 255 000, and brought into use on 1 September 2008. A contract was concluded on 1 July 2021 to erect new office block at a cost of R8 000 000 in Gauteng. The office block was brought into use on 1 February 2022. Depreciation on motor vehicles and office equipment amounts to R6 900 250 and corresponds with the allowable write- off periods as stated in Interpretation Note No. 47. Note 3: Repairs and moving costs consist of: Two delivery trucks were purchased for R420 000 each on 1 June 2022 and were immediately bought into use. The approved write-off period on trucks in terms of Interpretation Note No. 47 is four years. ● Machine D (fully written off for tax purposes) was upgraded, and the machine now produces twice its former production output. The machine is as good as new. The cost of the original machine amounted to R200 000. The cost of the R275 000 upgrade qualifies for a 40% allowance in terms of section 12C Machine E (fully written-off for tax purposes) was moved to the new factory in Cape Town (note 4), and brought into use on 1 July 2022. Foundation relating to machine E 275 000 120 000 50 000 445 000 Note 4: On 31 October 2021, the company signed a 20-year lease contract with immediate effect. In terms of the contract, Munchies and Granolas Ltd had to erect another industrial building at a cost of R20 000 000 on the same premises. The lessor gave no further specifications. The building was completed on 30 June 2022 at a cost of R23 000 000, and brought into use on 1 July 2022. The lease premium of R500 000 was paid on the signing of the contract, and the monthly rental of R15 000 was payable from the signing of the lease contract. The original industrial building was occupied and brought into use immediately after the signing of the lease agreement. Note 5: The following transactions relate to the amount of salaries and wages deducted in the income statement: One of the research assistants resigned due to differences between herself and the supervisor. She accepted an amount of R90 000 as part of a restraint of trade agreement. The restraint of trade agreement is valid for a two-year period, and the amount was paid on 31 August 2022. ● • On 1 February 2022, Munchies and Granolas Ltd entered into a six-month registered learnership agreement with one of its existing disabled employees on an NQF level 7, Bran Brown. Munchies and Granolas Ltd complies with all the requirements set by the Commissioner with regards to learnership agreements, in terms of section 12H. All other amounts included in salaries and wages are tax deductible. ● Note 6: Munchies and Granolas Ltd conducts qualifying technological research and development activities. The research activities were approved by the Department of Science and Technology. The management of Munchies and Granolas Ltd decided to employ a team of experts, in order to create a new nutritious, affordable breakfast cereal. A patent would ultimately be registered in terms of the Patents Act. The following amounts were spent during the period 1 May 2022 to 30 September 2022: Cost of laboratory (exclusively used for this research), brought into use for the first time on 1 May 2022 New and unused machinery (exclusively used for this research) for the laboratory, brought into use on 2 May 2022 Research assistants' salaries Materials consumed R 900 000 350 000 440 000 15 000 705 000 Note 7: During the year, Munchies and Granolas Ltd registered its environmentally friendly logo as a trade mark to be included on all future product packaging. The cost of registering the trademark amounted to R38 800. YOU ARE REQUIRED TO: Calculate the taxable income of Munchies and Granolas Ltd for its year of assessment ending on 30 September 2022, starting with the net profit before tax of R15 389 085. Munchies and Granolas Ltd (a resident company) manufactures different brands of break-fast cereals in the Republic. The company is registered for VAT purposes. The following preliminary income statement of the company for the financial year 1 November 2021 to 30 September 2022 is at your disposal. All amounts exclude VAT, unless stated otherwise. Sales Less: Cost of sales Gross profit (taxable) Add: Other income Interest received Profit on sale of asset Income Less: Operating expenses Repairs and moving costs Depreciation Leasehold improvements and related expenses Bad debts-trade debtors Salaries and wages Scientific research expenditure Trade mark Other tax-deductible expenditure Net profit before tax R 282 500 200 (107 400 300) 175 099 900 15 160 000 2 500 000 180 759 900 (165 370 815) 3 445 000 29 248 256 4 23 620 000 125 000 5 33 344 759 61 705 000 7 38 800 96 844 000 15 389 085 Notes: Note 1: Munchies and Granolas Ltd earned interest on investments at local financial institutions. Note 2: Profit on sale of fixed asset and depreciation provided: Machine B (with a tax value of Rnil) was sold for R360 000 (less than the original cost) on 30 November 2021 to a non- connected party. • Manufacturing machine C (new) was purchased on 1 June 2022 for R2 500 000 (including all related qualifying costs). and brought into use on 1 July 2022 in the new industrial building in Cape Town. ● ● The industrial (factory) building was erected in Gauteng during 2008 at a total cost of R20 255 000, and brought into use on 1 September 2008. A contract was concluded on 1 July 2021 to erect new office block at a cost of R8 000 000 in Gauteng. The office block was brought into use on 1 February 2022. Depreciation on motor vehicles and office equipment amounts to R6 900 250 and corresponds with the allowable write- off periods as stated in Interpretation Note No. 47. Note 3: Repairs and moving costs consist of: Two delivery trucks were purchased for R420 000 each on 1 June 2022 and were immediately bought into use. The approved write-off period on trucks in terms of Interpretation Note No. 47 is four years. ● Machine D (fully written off for tax purposes) was upgraded, and the machine now produces twice its former production output. The machine is as good as new. The cost of the original machine amounted to R200 000. The cost of the R275 000 upgrade qualifies for a 40% allowance in terms of section 12C Machine E (fully written-off for tax purposes) was moved to the new factory in Cape Town (note 4), and brought into use on 1 July 2022. Foundation relating to machine E 275 000 120 000 50 000 445 000 Note 4: On 31 October 2021, the company signed a 20-year lease contract with immediate effect. In terms of the contract, Munchies and Granolas Ltd had to erect another industrial building at a cost of R20 000 000 on the same premises. The lessor gave no further specifications. The building was completed on 30 June 2022 at a cost of R23 000 000, and brought into use on 1 July 2022. The lease premium of R500 000 was paid on the signing of the contract, and the monthly rental of R15 000 was payable from the signing of the lease contract. The original industrial building was occupied and brought into use immediately after the signing of the lease agreement. Note 5: The following transactions relate to the amount of salaries and wages deducted in the income statement: One of the research assistants resigned due to differences between herself and the supervisor. She accepted an amount of R90 000 as part of a restraint of trade agreement. The restraint of trade agreement is valid for a two-year period, and the amount was paid on 31 August 2022. ● • On 1 February 2022, Munchies and Granolas Ltd entered into a six-month registered learnership agreement with one of its existing disabled employees on an NQF level 7, Bran Brown. Munchies and Granolas Ltd complies with all the requirements set by the Commissioner with regards to learnership agreements, in terms of section 12H. All other amounts included in salaries and wages are tax deductible. ● Note 6: Munchies and Granolas Ltd conducts qualifying technological research and development activities. The research activities were approved by the Department of Science and Technology. The management of Munchies and Granolas Ltd decided to employ a team of experts, in order to create a new nutritious, affordable breakfast cereal. A patent would ultimately be registered in terms of the Patents Act. The following amounts were spent during the period 1 May 2022 to 30 September 2022: Cost of laboratory (exclusively used for this research), brought into use for the first time on 1 May 2022 New and unused machinery (exclusively used for this research) for the laboratory, brought into use on 2 May 2022 Research assistants' salaries Materials consumed R 900 000 350 000 440 000 15 000 705 000 Note 7: During the year, Munchies and Granolas Ltd registered its environmentally friendly logo as a trade mark to be included on all future product packaging. The cost of registering the trademark amounted to R38 800. YOU ARE REQUIRED TO: Calculate the taxable income of Munchies and Granolas Ltd for its year of assessment ending on 30 September 2022, starting with the net profit before tax of R15 389 085.

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Net profit before tax R 15 389 0 85 Add Other income Interest re... View the full answer