Reaipela (Pty) Ltd (“Reaipela”) is a South African resident company that specialises in tailoring and selling high quality traditional apparel. The company is registered as a category B vendor for Value- Added Tax (VAT) purposes. The tailoring business makes up 60% of the company, while the holiday accommodation and the sewing academy makes up 10% and 30% of the company respectively. All amounts include VAT unless otherwise stated.

The following transactions relate to the two-months VAT period ended 31 August 2023:

1. On 15 August 2023, a sewing machine that was acquired for R70 000 on 3 July 2023 from an unconnected South African non-vendor was damaged due to load-shedding. The market value of the sewing machine was R98 000 on the day of acquisition. Reaipela had fortunately insured the machine with Uitsurance Limited, which advanced a pay-out of R95 000 to cover the damages.

2. A five-seater Ford sedan was acquired for R265 000 on 1 August 2023 and allocated to Reaipela’s marketing specialist for use as a company car on the same day. The marketing specialist handles the marketing for the division of Reaipela. The marketing specialist bears the full costs of repairs and maintenance of the car, while Reaipela is responsible for the fuel costs. The fuel costs for the month of August amounted to R2 750.

3. Mrs Sibeko, the only female director of the company took one traditional dress with a cost of R5 200 and a market value of R8 450 to wear at a friend’s birthday party. Mrs Sibeko holds 15% of the issued shares and voting rights in Reaipela.

4. On 5 January 2023, Reaipela invested its surplus cash into a fixed deposit account. During the two months period ending 31 August 2023, the investment yielded a total interest income of R10 500.

5. The following expenses appeared in Reaipela’s accounting records for the two months ended
31 August 2023:
• Bad debts written off…………………………… R36 200
• Bank charge……………………………………. R2 125 (excluding VAT)
• Salaries and wages……………………………. R62 500
• Union membership fees for employees……… R5 000

60% of the bad debts written off relate to the sewing academy. All other expenses relate to the tailoring business.

6. On 19 June 2023, Reaipela place an order to purchase an African print fabric from a Malawian supplier. The fabric was couriered to South Africa on 28 June 2023 and arrived at the Durban customs and excise warehouse on the same day. The fabric was cleared for home consumption
on 4 July 2023. The custom duty value was determined as R45 000 and the non-refundable import duties amounting to R3 500 were incurred on the transaction.

7. For the month of July 2023, Reaipela held a promotion where customers buying three items, and more were given the cheapest item for free. Revenue amounting to R328 000 was generated from the promotion. Items given to customers for free had a total market value of R66 000 and
a total cost of R50 000. In addition to the free gift, each and every customer entering the store for the first time was given a free glass of champagne. A total amount of R12 000 was spent on buying the champagne.

8. Reaipela owns a holiday house situated in Gqeberha, South Africa. The holiday house was acquired on 1 April 2018 for R1 800 000 and is currently rented out as a self-catering holiday accommodation. Rental income for the two months ended 31 August 2023 amounted to
R138 000. Included in the R138 000 is rental income amounting to R20 800 relating to stays longer than a month.

9. In 2008 Reaipela founded a sewing academy registered under the Higher Education Act. The academy provides short courses that equip students with basic and advanced sewing skills. During the month of July, Reaipela provided bursaries worth a total of R30 000 to five deserving
students.

Calculate the VAT payable by or refundable to Reaipela (Pty) Ltd for the two months ended 31 August 2023. Provide reasons for amounts that have a nil effect on VAT payable or refundable.

VAT is 15% (South African based)

Answer rating: 100% (QA)

To calculate the VAT payable or refundable by Reaipela Pty Ltd for the two months ended 31 August 2023 we need to consider the VAT treatment for each ... View the full answer