QUESTION THREE $[35]$

Heels $($Pty$)$ Ltd $($the company$),$ a resident of the Republic, is a company engaged in the

manufacture of shoes. The company$$s financial year ends on the last day of February.

Heels $($Pty$)$ Ltd is not considered to be a small business corporation. During the $2024$ year of

assessment, the company embarked on an expansion project, in order to meet an increase

in the demand for their shoes. The following transactions were entered into as part of their

expansion initiative $($ignore VAT for the purposes of this question$)$:

$$ Heels $($Pty$)$ Ltd conducts its manufacturing business from a building it purchased for

R$800000($of which R$100000$ related to the land$)$ on $1$ June $2014.$ Due to the

expansion project underway, a need arose to acquire additional premises. The

company entered into a $20-$year lease agreement on $1$ January $2024$ with the owner

of the adjacent building, who is also a registered taxpayer. Heels $($Pty$)$ Ltd took

occupation immediately and began production in the leased building. The terms of

the lease, are as follows:

o Heels $($Pty$)$ Ltd is required to pay a monthly rental of R$20000,$ payable on the

first day of every month, from $1$ January $2024.$

o A lease premium of R$50000$ was payable by Heels $($Pty$)$ Ltd on $1$ January

$2024.$A clause in the lease agreement stipulated that the lessee is to effect

improvements to the building at a cost of R$75000.$ The improvements were

completed and brought into use on $1$ February $2024,$ at a cost of R$100000.$

The improvements to the building are considered to be used in the process of

manufacture.

$$ On $1$ August $2023,$ five identical machines costing R$20000$ each were acquired from

Broke $($Pty$)$ Ltd$,$ an independent $($unconnected$)$ resident company that also

manufactured shoes that was shutting down. These machines were originally

purchased new by Broke $($Pty$)$ Ltd and used in its process of manufacture.

Heels $($Pty$)$ Ltd brought these machines into use in its process of manufacture from

the date it commenced manufacturing in the leased premises $($see above$).$ The

market value of each machine on the date of purchase was R$25000.$

$$ On $1$ December $2023,$ the company concluded a contract for the purchase of a new

cutting machine that was to be used in the process of manufacture, at a cost of

R$250000.$ The supplier of the machine agreed to a delivery date of $15$ January $2024$

but due to the supplier$$s employees going on strike, the machine was only delivered

on $15$ February $2024.$ Due to the delay, the supplier agreed to a lower selling price of

R$240000.$ The contract was updated and the supplier invoiced Heels $($Pty$)$ Ltd for

R$240000$ which was paid via EFT on the date of delivery. Heels $($Pty$)$ Ltd paid an

additional R$5000$ for the installation of the machine which took place on $25$ February

$2024,$ and the machine was immediately brought into use on that date.

$$ New furniture was purchased for the leased premises at a cost of R$42000$ on

$1$ January $2024$ and immediately brought into use. A new delivery vehicle was purchased and brought into used on $1$ February $2024$ at

a cost of R$280000.$

$$ The company owns other two delivery vehicles which were purchased on $1$ March

$2016$ at a cost of R$120000$ each, which have been fully written$-$off for tax purposes.

On $15$ February $2024,$ one of these vehicles was sold for R$50000.$

Additional information:

$$ The Commissioner of SARS has approved the following write$-$off periods $($on a

straight$-$line basis$)$:

o Furniture $6$ years and

o Delivery vehicles $4$ years. Required: Calculate the effects on Heels $($Pty$)$ Ltd$$s taxable income arising from each of the

transactions listed above for the $2024$ year of assessment. Round off to the nearest Rand.

Show ALL workings.