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OCCUPATIONAL CERTIFICATE:

TAX PROFESSIONAL

SAQA ID: 93624

Initial Test of Competency

RPL Assessment

May 2018

Paper 2: Questions 3 and 4

QUESTIONS

CANDIDATE NUMBER

2

Instructions to Candidates

1. This competency assessment consists out of 3 sessions (6 papers/questions).

2. This session comprises papers 3 and 4.

3. Answer each question in a separate answer book.

Session 2:

Paper/Question

Topic Marks Answer Book

3 Companies (Corporate tax) 30 Yellow

4 4.1. Analysis of Financial

Statements

20

Green

4.2. Value-Added Tax (VAT) 10

Total marks: 60 Marks

Time: 3 hours and 30 minutes writing time

The marks specified are an indication of the expected length and detail of your

response.

4. Enter your examination number on the cover of each answer book as well as on

all answer sheets.

5. Your name must not appear anywhere in the answer books.

6. Answers may not be written in pencil and correction pens (Tipp-ex) may not be

used.

7. Answer the questions using effective presentation and pay particular attention to

the use of concise language, clarity of explanation and logical argument. Marks

will be awarded for these aspects of your response.

8. It is your responsibility to ensure that all answer books are handed in to the

invigilator before leaving the examination room, as answer books handed in

thereafter will not be marked.

9. Please take note of the tax rates and tables provided in Annexure A to this

paper (see page 15).

10. Round all amounts to the nearest Rand.

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PAPER 2: QUESTION 3 - COMPANIES (CORPORATE TAX)

30 Marks

SAIT RPL - Question 1 Suggested Solution

Part a)

Detail Reason/Working ZAR Marks

Restaurant takings - Gross Income definition 7 980 000/1.14 7 000 000 1

Tip amounts (received for own benefit) Gross income 650 000 1

Opening stock deduction Section 22(2) -405 000 1

Closing stock addition - at market value Section 22(1) 350 000 1

Losses on wasted proteins Section 11(a), Joffe case -42 000 1

Insurance Section 11(a),

Section 23H

> As the benefit extends more than 6 months after year end (it

extends 10 months after year end), s23H will apply

790 000/12*2 -131 667 1

Section 13quin allowance on restaurants Section 13quin 1

> Premises 1 and 2 5 100 000*2*5% -510 000 1

> Premises 3 and 4 - not new and unused Section 13quin - 1

4

Allowances on heating ovens for food - s11(e) 1 930 000/6 -321 667 1

Salaries - gross includes employees' tax Section 11(a) -3 000 000 1

Interest on loans to finance premises Section 24J -880 000 1

Contributions to medical schemes Section 11(l) -270 000 1

Imported clams (Pacific geoducks)

> Translate at spot (s25D, s11(a)) (15 000 * 12.4123) +

30 000

-216 185 2

> Not on hand at year end s23F 216 185 1

Allowances on all other assets Given -684 100 1

Taxable Income 1 755 567

Available Marks 17

Maximum Marks 15

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SAIT RPL 2017 - Question 1 Suggested Solution

Part b) Marks

Restaurant Building distributed as a dividend

Income Tax

The distribution of the restaurant building will be seen as a disposal. 1

The restaurant building is an asset per the Eighth Schedule and there is proceeds and a base cost. 1

As a result, there will be capital gains tax on this distribution. 1

The Proceeds will be the market value on the date of disposal per paragraph 75. 6 400 000 1

The Base Cost will be the cost of construction per paragraph 20. -5 800 000 1

Capital Gain 600 000

This capital gain will be aggregated with all the other capital gains and losses of Coriander. 1

The rate of inclusion of any net capital gain in taxable income for Coriander is 80% (s26A and para

10(b)(iii)).

1

There is no section 13quin allowance or recoupment as the building is not yet used for trade

purposes.

1

Dividends Tax

The distribution of the restaurant building will be a distribution in specie 1

The value of the dividend is the market value of the restaurant building (s64E(3)(b)) 1

6

The value of the dividend is equal to: 6 400 000 1

The dividends tax rate post 22 February 2017 is 20%. 1

The dividends tax payable is equal to (6 400 000*20%) 1 280 000 1

As this is a dividend in specie, Coriander will be liable for this dividends tax (s64EA(b)) 1

Donation of R2 000 000

Income Tax

As this is a cash donation that is capital in nature, there will be no section 11(a) deduction allowed. 1

Donations Tax

The donation of R2 000 000 will result in donations tax payable by Coriander. 1

The donations tax rate is 20% (as per section 64). 1

The donations tax payable is R2 000 000*20% = R400 000. 1

Coriander will be liable for this donations tax, but if it is not paid by the end of the month following

the month during which the donation took place (s60), then Sanjeev will be jointly and severally

liable with Coriander (section 59).

1

Available Marks 19

Maximum Marks 15

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PAPER 2: QUESTION 4 (COMPRISING TWO UNRELATED QUESTIONS)

QUESTION 4.1: ANALYSIS OF FINANCIAL STATEMENTS

20 Marks

QUESTION: ANALYSIS OF FINANCIAL STATEMENT

20 Marks

Note

no. Description Amount Marks

Profit before tax (given in question). 396 200

1.1 Income received in advance during previous year

Amount would have been taxed during the previous year (2016) and this not included again.

(220 000)

1

1.2 Sales to overseas client

Full consideration in respect of agreement has not yet accrued and goods sold also not included in

closing stock, therefore s 23F(1) would prohibit deduction of expenditure.

s 23F limitation: R160 000 (cost already deducted) – R77 000 (income recognised)

83 000

1

2 Cost of sales

No adjustment necessary as cost of trading stock already taken into account for accounting

purposes

Furthermore trading stock should be carried at the cost price (as recognised for accounting

purposes) in terms of s 22 and not adjusted to be at market value.

- 0.5

3.1 Dividends received (14 500) 0.5

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Dividend exempt in terms of s 10(1)(k).

3.2 Interest received (local bank account)

No interest exemption in terms of s 10(1)(i) is afforded to a company.

- 0.5

4 Eighth houses leased to employees

Rental income should be included in taxable income.

{R500 per month in respect of rental below market value did not accrue (therefore not included)}

-

1

13sex allowance: [R375 000 x 8 houses] (0.5) x 5% (1) (150 000) 1.5

4 Fringe benefit granted to employees (accommodation)

- No deduction afforded in terms of s 11(a) as no expenditure actually incurred.

- No inclusion in taxable income as fringe benefit included in gross income of employee (not

employer).

- 1

5 Demonstration cabinets sold

- Small item therefore allowed a deduction in full for the R7 500 in terms of s 11(e).

- Amount recovered should then be recouped in terms of s 8(4)(a).

- Therefore no further adjustment required net expense already deducted for accounting purposes.

- 1

6.2 Office furniture donated

- Wear-and-tear in terms of s 11(e): R68 000 x (1/6) years (0.5) x (9/12) months (0.5)

- Amount recovered or recouped in terms of s 8(4)(k) 54 000

(8 500) 1

- Tax value (R68 000 – (R68 000 x (1/6) years (0.5) x (27/12) months (0.5))) (42 500) 1

Recoupment 11 500 11 500 0.5

7 Name board replaced

No deduction allowed in terms of s 11(d) as the previous name board replaced was not damaged.

12 300

0.5

9

An improvement to commercial building qualifying for s 13quin allowance: R12 300 x 5% (1) (615) 1

8 Depreciation

Accounting entry should be reversed and tax allowances deducted.

774 000 0.5

8.1 Office building

Not acquired new and unused therefore no capital allowance in terms of s 13quin allowed.

- 1

8.2 Office furniture and equipment

Wear-and-tear in terms of s 11(e): R487 000 x (1/6) years (0.5) x (12/12) months (0.5) (81 167) 1

8.3 Manufacturing machinery

Accelerated allowance would have applied in terms of s 12C as acquired new, therefore initial

allowance of 40% in 2012 year of assessment and remaining 20% per year from 2013 to 2015.

Consequently machinery would already have been fully allowed as deduction with no further

allowance in 2017.

- 1

8.3 Manufacturing machinery – Financing costs

Financing costs deductible in terms of s 24J(2) despite being of a capital nature. The financing cost

are therefore not capitalised as was done for accounting purposes.

(146 700) 1

9.1 Rentals paid (factory)

Deductible in terms of s 11(a) therefore not adjustment required.

- 0.5

9.2 Restraint of trade

Deduction allowed in terms of s 11(cA): R40 000 x (1/5) years (0.5) x (2/12) months (0.5)

Add back accounting deduction.

(1 333)

40 000

1

0.5

10 Provisional tax paid

Prohibited as a deduction in calculating taxable income in terms of s 23(d).

- 0.5

10

6 Add back accounting deduction in respect of donation 18 800 0.5

Sub-total before 18A deduction 712 985

6 Donations (s 18A)

- Qualifying donation current year 68 000 0.5

- Excess carried from previous year 29 000 0.5

Donations considered for deduction in 2017 year 97 000

- Limited to 10% of taxable income before donation (R712 985 x 10%) 71 298 (71 298) 1

TAXABLE INCOME 641 689

TOTAL AVAIL: 21.5

MAX: 20

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PAPER 2: QUESTION 4

QUESTION 4.2: VALUE-ADDED TAX (VAT)

10 Marks

VAT Input: B category: - Jan and Feb

R 1 If they have dates wrong penalise once and then mark on

Purchases (R120 000 + R58 000)(1) x 14/114 (1) 21 860

2

Salaries Not an enterprise (1) 1

Bank charges (R1345+ R531) (1)x 14/114 230 1

Bank interest Exempt – financial service 1

Motor vehicle Prohibited input - motor 1

Computer bought (R23 000(1) x 14/114) x 60%(1) 1 695 2

Fuel Zero rated 1

Coffee machine Entertainment - prohibited 1

11 max 10

***END OF PAPER***

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ANNEXURE A

Small Business Corporations (SBC) - see changes from last year

Financial years ending on any date between 1 April 2017 and 31 March 2018:

Taxable income (R) Rate of tax (R)

0 – 75 750 0%

75 751 – 365 000 7% of taxable income above 75 750

365 001 – 550 000 20 248 + 21% of taxable income above 365 000

550 001 and above 59 098 + 28% of taxable income above 550 000

SARS Official Rate of Interest: 8%

Transfer Duty Rates:

In respect of acquisition of property on or after 1 March 2017

VALUE OF PROPERTY (Rand)

RATE

0 – 900 000 0%

900 001 – 1 250 000 3% of the value above R900 000

1 250 001 – 1 750 000 R10 500 + 6% of the value above R 1 250 000

1 750 001 – 2 250 000 R40 500 + 8% of the value above R 1 750 000

2 250 001 – 10 000 000 R80 500 +11% of the value above R2 250 000

10 000 001 and above R933 000 + 13% of the value above R10 000 000

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