Ramula Lodge (Pty) Ltd, a resident company, is a small family-owned business situated in Mpumalanga that...

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Ramula Lodge (Pty) Ltd, a resident company, is a small family-owned business situated in Mpumalanga that provides accommodation to various local and international guests. The company qualifies as a small business corporation. Unless otherwise stated or implied, all amounts exclude VAT. A draft Statement of Profit or Loss and Other Comprehensive Income for the year of assessment ended 31 March 2021 is presented below: Revenue Cost of sales Gross profit Other income Operating expenses: Employee costs Credit losses Depreciation (all assets) General expenses Repairs and maintenance Leasing cost Legal cost Profit before tax Tax expense Profit for the period 1. NOTE(S) 1 2 3 4 2 2 5 6 6 R 15 750 000 (8 320 000) 7 430 000 620 000 (3 466 180) (10 000) (187 550) (150 000) (12 500) (1 080 000) (15 800) 3 127 970 ?? ?? Cost of sales Cost of sales include food and beverages purchased for the restaurant as well as consumable cleaning products used by the restaurant and the lodge itself. The values for opening and closing stock are reflected at the correct values in terms of section 22(2) of the Income Tax Act. Before the company went into lockdown, management decided to donate all the food on hand to Gift of the Givers (a registered Public Benefit Organisation). The food donated had a cost of R98 570 and a market value of R126 110. A section 18A certificate was obtained. This donation has not been recorded. the accounting records. 2. 3. 4. 5. Other income Other income includes foreign dividends of R120 000 received from Denvier PLC, an unlisted company based in Denmark. Ramula Lodge (Pty) Ltd purchased 30 000 of the 5 000 000 shares issued by Denvier PLC on 1 April 2020 for R856 000. Broker fees of R17 250 were incurred and included in general expenses. You may assume that all other general expenses are tax deductible. On 1 December 2019, R320 000 was used to purchase a new delivery vehicle. Ramula Lodge (Pty) Ltd still owns the vehicle at the end of the 2021 year of assessment. Interpretation note 47 provides a four-year write off period for delivery vehicles on a straight-line basis. Employee costs Total employee costs are made up as follows: Salaries and wages Annuities paid to dependant of a deceased employee Restraint of trade (paid to Joshua Kimmel, to restrict him trading in competition with Ramula Lodge (Pty) Ltd for five years) Leave pay of this amount R56 280 was processed to increase the leave pay provision for the 2021 year. The remainder has been paid out to employees in cash. Total employee costs 2 235 620 98 000 940 000 192 560 3 466 180 Included in employee costs are the salaries of two interns which amounted R298 090 in total. These interns entered into a three-year registered learnership agreement with Ramula Lodge (Pty) Ltd on 1 July 2017. These interns have an NQF5 qualification and successfully completed the learnership program on 30 June 2020. Neither of them has a disability as defined. Credit losses Irrecoverable debtors written off during the year amounted to R6 000. The remaining R4 000 was due to an increase in the allowance for credit losses account that increased to R48 000 by the end of the 2021 year of assessment. The company does not apply IFRS9 and thus simply creates an allowance for credit losses amounting to the gross value of all debtor outstanding for more 120 days every year. Repairs and maintenance: In October 2020, heavy rains damaged the roof of the reception area of the lodge. The company paid R12 500 to repair these damages. As part of the insurance policy for structural damages, the company claimed for these repairs from the insurance 6. 7. company. However, only R10 350 was received in cash for this claim. The amount received has not yet been recorded. Lease agreement: On 1 March 2020, Ramula Lodge (Pty) Ltd entered into a lease agreement with Private Properties (Pty) Ltd to lease a vacant piece of land for a period of 12 years. The agreement stipulated that Ramula Lodge (Pty) Ltd must erect ten prefabricated homes on the land which will be used as accommodation for staff members. The total amount for these improvements stipulated in the contract was R800 000. The erection of these homes commenced on 12 March 2020, however, had to be halted once lockdown regulations were implemented. Construction resumed on 15 July 2020 and were completed on 31 August 2020. The prefabricated homes were brought into use on 1 December 2020 and the total cost amounted R930 000. A premium of R30 000 was paid at the commencement of the lease. Rentals amount to R10 000 per month. Legal costs incurred to set up the lease agreement amounted to R15 800. You may assume that the amounts are correctly reflected after taking into account the necessary VAT implications, if any. Monthly rentals received from the employees of R800 per employee has not yet been recorded. A cash dividend of R115 000 was declared on 20 December 2020. Required: Q.1.1 Discuss the financial and non-financial impact that the Coronavirus pandemic has had on the hospitality industry and steps companies such as Ramula Lodge (Pty) Ltd could take to mitigate the impact. Q.1.2 Calculate the tax payable for Ramula Lodge (Pty) Ltd for the year of assessment ended 31 March 2021. Start your calculation with profit before tax of R3 127 970. Show all calculations and where an amount has a nil effect and give a brief reason. Assume that Ramula Lodge (Pty) Ltd wants to reduce their tax liability where possible. Q.1.3 Calculate the dividends tax payable. Provide brief reasons for your answer. Also state which date the tax should be paid to the South African Revenue Service. (12) (35) (3) Ramula Lodge (Pty) Ltd, a resident company, is a small family-owned business situated in Mpumalanga that provides accommodation to various local and international guests. The company qualifies as a small business corporation. Unless otherwise stated or implied, all amounts exclude VAT. A draft Statement of Profit or Loss and Other Comprehensive Income for the year of assessment ended 31 March 2021 is presented below: Revenue Cost of sales Gross profit Other income Operating expenses: Employee costs Credit losses Depreciation (all assets) General expenses Repairs and maintenance Leasing cost Legal cost Profit before tax Tax expense Profit for the period 1. NOTE(S) 1 2 3 4 2 2 5 6 6 R 15 750 000 (8 320 000) 7 430 000 620 000 (3 466 180) (10 000) (187 550) (150 000) (12 500) (1 080 000) (15 800) 3 127 970 ?? ?? Cost of sales Cost of sales include food and beverages purchased for the restaurant as well as consumable cleaning products used by the restaurant and the lodge itself. The values for opening and closing stock are reflected at the correct values in terms of section 22(2) of the Income Tax Act. Before the company went into lockdown, management decided to donate all the food on hand to Gift of the Givers (a registered Public Benefit Organisation). The food donated had a cost of R98 570 and a market value of R126 110. A section 18A certificate was obtained. This donation has not been recorded. the accounting records. 2. 3. 4. 5. Other income Other income includes foreign dividends of R120 000 received from Denvier PLC, an unlisted company based in Denmark. Ramula Lodge (Pty) Ltd purchased 30 000 of the 5 000 000 shares issued by Denvier PLC on 1 April 2020 for R856 000. Broker fees of R17 250 were incurred and included in general expenses. You may assume that all other general expenses are tax deductible. On 1 December 2019, R320 000 was used to purchase a new delivery vehicle. Ramula Lodge (Pty) Ltd still owns the vehicle at the end of the 2021 year of assessment. Interpretation note 47 provides a four-year write off period for delivery vehicles on a straight-line basis. Employee costs Total employee costs are made up as follows: Salaries and wages Annuities paid to dependant of a deceased employee Restraint of trade (paid to Joshua Kimmel, to restrict him trading in competition with Ramula Lodge (Pty) Ltd for five years) Leave pay of this amount R56 280 was processed to increase the leave pay provision for the 2021 year. The remainder has been paid out to employees in cash. Total employee costs 2 235 620 98 000 940 000 192 560 3 466 180 Included in employee costs are the salaries of two interns which amounted R298 090 in total. These interns entered into a three-year registered learnership agreement with Ramula Lodge (Pty) Ltd on 1 July 2017. These interns have an NQF5 qualification and successfully completed the learnership program on 30 June 2020. Neither of them has a disability as defined. Credit losses Irrecoverable debtors written off during the year amounted to R6 000. The remaining R4 000 was due to an increase in the allowance for credit losses account that increased to R48 000 by the end of the 2021 year of assessment. The company does not apply IFRS9 and thus simply creates an allowance for credit losses amounting to the gross value of all debtor outstanding for more 120 days every year. Repairs and maintenance: In October 2020, heavy rains damaged the roof of the reception area of the lodge. The company paid R12 500 to repair these damages. As part of the insurance policy for structural damages, the company claimed for these repairs from the insurance 6. 7. company. However, only R10 350 was received in cash for this claim. The amount received has not yet been recorded. Lease agreement: On 1 March 2020, Ramula Lodge (Pty) Ltd entered into a lease agreement with Private Properties (Pty) Ltd to lease a vacant piece of land for a period of 12 years. The agreement stipulated that Ramula Lodge (Pty) Ltd must erect ten prefabricated homes on the land which will be used as accommodation for staff members. The total amount for these improvements stipulated in the contract was R800 000. The erection of these homes commenced on 12 March 2020, however, had to be halted once lockdown regulations were implemented. Construction resumed on 15 July 2020 and were completed on 31 August 2020. The prefabricated homes were brought into use on 1 December 2020 and the total cost amounted R930 000. A premium of R30 000 was paid at the commencement of the lease. Rentals amount to R10 000 per month. Legal costs incurred to set up the lease agreement amounted to R15 800. You may assume that the amounts are correctly reflected after taking into account the necessary VAT implications, if any. Monthly rentals received from the employees of R800 per employee has not yet been recorded. A cash dividend of R115 000 was declared on 20 December 2020. Required: Q.1.1 Discuss the financial and non-financial impact that the Coronavirus pandemic has had on the hospitality industry and steps companies such as Ramula Lodge (Pty) Ltd could take to mitigate the impact. Q.1.2 Calculate the tax payable for Ramula Lodge (Pty) Ltd for the year of assessment ended 31 March 2021. Start your calculation with profit before tax of R3 127 970. Show all calculations and where an amount has a nil effect and give a brief reason. Assume that Ramula Lodge (Pty) Ltd wants to reduce their tax liability where possible. Q.1.3 Calculate the dividends tax payable. Provide brief reasons for your answer. Also state which date the tax should be paid to the South African Revenue Service. (12) (35) (3)

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SOLUTION Q11 Discuss the financial and nonfinancial impact that the Coronavirus pandemic has had on the hospitality industry and steps companies such as Ramula Lodge Pty Ltd could take to mitigate the ... View the full answer