QUESTION $7\mathrm{.}1(32$ marks, $58$ minutes$)$

Cellcom $($Pty$)$ Ltd $($Cellcom$)$ is part of the cellphone industry, and it provides cellphone reception and call services. It has an extensive customer base that was created during the past few years. The company's current financial year ends on the last of June. The company is not a small business corporation as defined in the Income Tax Act $58$ of $1962.$

The company is registered as a VAT vendor, making only taxable supplies. All transactions are conducted with registered VAT vendors, unless specifically stated otherwise. All amounts exclude VAT. Where necessary, Cellcom obtained valid tax invoices and the required documentation for all its transactions.

The following information relates to Cellcom's activities for the current financial year:

Gross income amounts to $R2240000,$ before taking into account the information below.

Cellcom's employees belong to the company's approved pension fund. Cellcom contributes to this fund on behalf of its employees. Contributions on behalf of employees to the pension fund amounted to R$245000$ during the year. Cellcom's total salaries paid to the employees amounts to R$1200000.$

The financial manager, Mr Amounts, resigned on $31$ July $2022.$ To prohibit him from trading in direct competition to Cellcom, the company paid him an amount of R$550000$ at that date as compensation for his restraint$-$of$-$trade for the following five years. The full amount was included in Mr Amounts' income on his $2023$ income tax return.

The debtors clerk indicated that the list of doubtful debts amounted to R$2500000$ as at $30$ June $2023.$ Cellcom does not appy IFRS $9$ accounting standards for financial reporting purposes and $70\%$ of the list of doubtful debts are in arrears for more than $90$ days, but not more than $120$ days. The doubtful debt allowance claimed in the previous year of assessment amounted to R$760000.$

Cellcom's management decided to establish ties with another service provider, and it concluded an agreement with Shop$-$a$-$lot shopping centre to rent shop space from it$.$ The period of the lease is $10$ years, and the occupation date is $1$ October $2022.$ According to the lease contract, Cellcom must pay a lease premium of R$40000$ on the occupation date, as well as a monthly rent of R$7000.$

Cellcom concluded an agreement with Office Space $($Pty$)$ Ltd to lease a piece of land with a small office building for its head office activities. The lease contract determines that the lease period is $20$ years as of $1$ September $2022.$ According to the contract, Cellcom must effect improvements to the existing buildings and extend the office space at a cost of R$1500000.$ The improvements commenced on $1$ October $2022$ and they were completed on $1$ January $2023$ at a cost of R$1400000.$ The building was brought into use on $1$ March $2023.$

Legal fees to the amount of R$175000$ were incurred for the following:

Drafting of all the lease contracts $.........$

$R$

Collection of outstanding trade debtors

$35000$

$85000$

$($Note: Employee remuneration is deductible for purposes of this question.$)$

$2$

QUESTION $7\mathrm{.}1($continued$)$

Penalties and interest paid to SARS amount to R$16000.$

Bad debts written off consist of the following:

$100$

$-$

$55000$

The following expenditure was paid on $25$ June $2023$:

Rental of the switchboard system for head office for the period

$1$ July $2023$ to $31$ January $2024q,$

Deposit for the purchase of a delivery vehicle that will be delivered on

$1$ September $2023...$

$40000$

$100$

Repair costs were incurred for the following reasons:

Service and repair of a photocopier $q,$

Repaving of the parking area that was in bad condition.

Carports were erected on $1$ April $2023$ at a cost of R$20000($this cost is included in the total amount of R$35000).q,$

$11.$ The cost price of fixed assets that Cellcom used during the year consisted of the following:

Furniture $($desks and chairs$)$ purchased on $1$ February $2020$

$($including VAT$)138000$

Photocopier purchased on $1$ January $2018($excluding VAT$).q,$

$8000$

Computers purchased on $1$ August $2022($excluding VAT$).$

$90000$

BGR No$.7$ allows the following write$-$off periods for these assets:

Furniture: $6$ years

Photocopier: $5$ years

Computers: $3$ years

Carports: $5$ years

$\backslash$table$[[$REQUIRED$,$MARKS$],[$Calculate the taxable income of Cellcom $($Pty$)$ Ltd for the $2023$ year of assessment.,$32]]$