3 TAX3701 May / June 2019 2 TAX3701 May / June 2019 QUESTION 1 (30 marks, 54 minutes) This question comprises two independent parts, namely Part A and Par B PART A (23 marks, 41 minutes) Banka (Py) Ltd (Banka") is a recruitment agency, specialising in locating young entrepreneurs in rural areas The main business focus on Gauteng and the surrounding areas The company is a small busi- ness corporation as defined in the Income Tax Act and its financial year ends on the last day of Dember Banka is a registered VAT vendor making only taxable supplies All amounts exclude VAT, unless other wise stated You are provided with a list of income and expenses of Banka for the financial year ending on 31 December 2018 Description Note Amount Income R Service fees 1 890 000 1 123 000) (500 000) Expenses Advertising Salanes Insurance Restraint of trade Bad debts Lease payments Legal expenses Service contracts Depreciation 2 3 4 5 (450 000) (8 000) QUESTION 1 (continued) An allowance for doubtful debt was allowed by SARS in the previous year of assessment Lease payments Banka entered into a lease contract with RENT (Pty) Lid to occupy an office building from 1 February 2018 for a penod of five years (Refer to note 6) The lease agreement stipulates the following Rental per month of RB 900, and - Barka is obliged to effect leasehold improvements of R340 000 to the office building The leasehold improvements commenced on March 2018 and were completed at a total cost of R320 000 on 31 October 2018 The improvements were brought into use on 31 October 2018 6 Legal expenses The legal costs have been incurred for drawing up the lease contract (Refer to note 5) 7 Service contracts Banka made the following payments Payment date Description Amount For services to be rendered for the following period 1 September 2018 IT support services R110 000 1/03/2018 to 31/08/2019 1 November 2018 Secunty services R30 000 1/11/2016 10 31/10/2019 Depreciation The depreciation relates to the following assets Second-hand furniture purchased for R80 000 (including VAT) on 15 June 2016 New computers for the company were purchased for a total value of R65 000 on 1 September 2017 from a non-vendor Binding General Ruling No 7 makes peovision for the following write-off periods Computer 3 years Furniture Additional information The company made a first provisional tax payment of R80 000 on 30 June 2018 and a second provisional tax payment of R75 000 on 31 December 2018 in respect of the 2018 year of assessment (13000) (140 000) 33 000) 1 Notes Advertising Banka paid an amount of R23 000 to an advertising company to create posters to advertise its bus ness to local entrepreneurs 2 Insurance Banka took out a key man insurance policy for death, disablement or illness) on one of ts key employees. Mr Jojo, on 1 June 2018 The company pays R560 per month for the policy The em ployee is the beneficiary of the policy that is owned by Banka and the premiums are included in the employee's gross income as a fringe benet 3 Restraint of trade Banka made a restraint of trade payment of R450 000 to one of their lead recruiters, Mr Chauke, on 31 August 2018 Mr Chauke was restrained from competing with the company for two years from the date of the payment Only R400 000 will constate income' as defined in the hands of Me Chauke 6 years REQUIRED MARKS 4. Bad debts Year-end 23 Trade debtors Bad debts Calculate the normal tax liability of Banka (Pty) Lid for the 2018 year of assessment Do not start with the net prolt before tax and do not make any accounting adjustments Calculate the normal tax ability by starting with income-Service fees ignore any capital gains tax implications and show all your calculations 2018 2017 2016 R320 000 R240.000 R290 000 Total of doubtful debts R25 000 R18 000 R20 000 R8 000 R4000 R5 000 [TURN OVER) (TURN OVERI 3 TAX3701 May / June 2019 2 TAX3701 May / June 2019 QUESTION 1 (30 marks, 54 minutes) This question comprises two independent parts, namely Part A and Par B PART A (23 marks, 41 minutes) Banka (Py) Ltd (Banka") is a recruitment agency, specialising in locating young entrepreneurs in rural areas The main business focus on Gauteng and the surrounding areas The company is a small busi- ness corporation as defined in the Income Tax Act and its financial year ends on the last day of Dember Banka is a registered VAT vendor making only taxable supplies All amounts exclude VAT, unless other wise stated You are provided with a list of income and expenses of Banka for the financial year ending on 31 December 2018 Description Note Amount Income R Service fees 1 890 000 1 123 000) (500 000) Expenses Advertising Salanes Insurance Restraint of trade Bad debts Lease payments Legal expenses Service contracts Depreciation 2 3 4 5 (450 000) (8 000) QUESTION 1 (continued) An allowance for doubtful debt was allowed by SARS in the previous year of assessment Lease payments Banka entered into a lease contract with RENT (Pty) Lid to occupy an office building from 1 February 2018 for a penod of five years (Refer to note 6) The lease agreement stipulates the following Rental per month of RB 900, and - Barka is obliged to effect leasehold improvements of R340 000 to the office building The leasehold improvements commenced on March 2018 and were completed at a total cost of R320 000 on 31 October 2018 The improvements were brought into use on 31 October 2018 6 Legal expenses The legal costs have been incurred for drawing up the lease contract (Refer to note 5) 7 Service contracts Banka made the following payments Payment date Description Amount For services to be rendered for the following period 1 September 2018 IT support services R110 000 1/03/2018 to 31/08/2019 1 November 2018 Secunty services R30 000 1/11/2016 10 31/10/2019 Depreciation The depreciation relates to the following assets Second-hand furniture purchased for R80 000 (including VAT) on 15 June 2016 New computers for the company were purchased for a total value of R65 000 on 1 September 2017 from a non-vendor Binding General Ruling No 7 makes peovision for the following write-off periods Computer 3 years Furniture Additional information The company made a first provisional tax payment of R80 000 on 30 June 2018 and a second provisional tax payment of R75 000 on 31 December 2018 in respect of the 2018 year of assessment (13000) (140 000) 33 000) 1 Notes Advertising Banka paid an amount of R23 000 to an advertising company to create posters to advertise its bus ness to local entrepreneurs 2 Insurance Banka took out a key man insurance policy for death, disablement or illness) on one of ts key employees. Mr Jojo, on 1 June 2018 The company pays R560 per month for the policy The em ployee is the beneficiary of the policy that is owned by Banka and the premiums are included in the employee's gross income as a fringe benet 3 Restraint of trade Banka made a restraint of trade payment of R450 000 to one of their lead recruiters, Mr Chauke, on 31 August 2018 Mr Chauke was restrained from competing with the company for two years from the date of the payment Only R400 000 will constate income' as defined in the hands of Me Chauke 6 years REQUIRED MARKS 4. Bad debts Year-end 23 Trade debtors Bad debts Calculate the normal tax liability of Banka (Pty) Lid for the 2018 year of assessment Do not start with the net prolt before tax and do not make any accounting adjustments Calculate the normal tax ability by starting with income-Service fees ignore any capital gains tax implications and show all your calculations 2018 2017 2016 R320 000 R240.000 R290 000 Total of doubtful debts R25 000 R18 000 R20 000 R8 000 R4000 R5 000 [TURN OVER) (TURN OVERI