QUESTION $1$

PART A $(30$ marks, $54$ minutes$)$

Defendify $($Pty$)$ Ltd $("$Defendify$")$ manufactures self$-$defence weapons in Johannesburg, South Africa. The company's manufacturing process has been approved by SARS as a qualifying process of manufacture. The company is not a small business corporation, as defined in the Income Tax Act.

The company is registered as a Category A$,$ value$-$added tax $($VAT$)$ vendor, making only taxable supplies. Defendify's financial year ends on the last day of March.

The company carried forward an assessed loss of R$56000$ from the previous year of assessment $(2021)$ and always utilises any possible election$($s$)$ that would legally minimise its overall tax liability during any given year of assessment.

You have been appointed as the tax manager of ABC Accounting and Defendify $($Pty$)$ Ltd is your new client. The following transactions relate to the $2022$ year of assessment:

Included in the sales amount of $R4500000$ is an advance payment of $R30000$ received from a customer in respect of a pepper spray order still to be manufactured. The quoted selling price is R$85000,$ and it should cost R$60000$ to manufacture the pepper spray. It is estimated that the transaction will be finalised within three months after the end of the current year of assessment. The specific gross profit percentage of the debtor can be applied to the allowance as the Commissioner approved the allowance.

Purchases amounted to R$1500000$ and the cost of opening and closing stock were R$556000$ and R$765400$ respectively. The market value of opening and closing stock were R$665000$ and $578000$ respectively.

On $17$ August $2021,$ Defendify purchased raw material for $$14000($free on board$)$ from a supplier in Canada to manufacture taser guns. The order was placed on $17$ August $2021$ to be delivered as soon as possible, and the debt was settled on $15$ April $2022.$

The following ruling exchange rates applied:

$\backslash$table$[[$Date$,$Exchange rate $($Spot$),$Average rate$],[17$ August $2021,1$$$=$ R$17\mathrm{.}89,],[31$ March $2022,1$$$=R18\mathrm{.}45,],[15$April $2022,1$$$=$ R$18\mathrm{.}75,],[1$ April $2021-31$ March $2022,,$$ $ R $18\mathrm{.}10]]$

The company leases a few of its delivery vehicles in terms of finance leases. The instalments are all payable over $48$ months. You are provided with the following information:

Instalments for the year $($including VAT$)$

R$280000$

VAT element included in instalments for the year

$?$

The debtors clerk indicated that the list of doubtful debts amounted to R$450000$ and that $40\%$ of the list of doubtful debts are in arrears for more than $60$ days, but less than $120$ days. Defendify does not apply IFRS $9.$

$5$

TAX$3761$

Test $2$ June $2022$

PART A $($continued$)$

The following information relates to the assets held by the company:

Defendify purchased a plot of land on $10$ July $2008$ and erected a factory building on the land. The plot of land was originally acquired for R$450000($including VAT$)$ and the factory was erected on $1$ October $2008$ for R$990000($including VAT$)$ and brought into use on $30$ November $2008.$ As Defendify is a VAT vendor making $100\%$ taxable supplies, the company could claim the input tax on the original transaction for the plot of land and the factory building.

The following costs were incurred while the company owned the factory building and plot of land:

$\backslash$table$[[$Bond registration costs $(10$ July $2008),$R$6500],[\backslash$table$[[$Interest paid on mortgage bond $($portion relating to $2022$ year of$],[$assessment is R$50000)]],$R$500000],[$Improvements to the factory building $(15$ August $2016),$R$250000],[$Advertising costs to find a buyer for the assets $(16$ January $2022),$R$15000]]$

The plot of land and factory building was sold as a unit on $31$ January $2022$ respectively for R$500000($land$)$ and R$2000000($factory$),$ to an unconnected person.

$\backslash$table$[[$REQUIRED:$,$MARKS$],[$Calculate the taxable income of Defendify $($Pty$)$ Ltd for the $2022$ year of assessment.,$30]]$