a) Calculate the effect of transactions 1 to 5 on the taxable income (or assessed loss) of Happy Times Binoculars (Pty) Ltd for the year of assessment ending on 30 June 2020. Support you answer with references to the Income Tax Act No. 58 of 1962 for the inclusion, deduction or omission of all amounts and transactions mentioned above. Round off all amounts to the nearest rand. You may ignore any value-added tax effects.

b) Discuss the normal tax consequences of transaction 6 for Happy Times Binoculars (Pty) Ltd for the year of assessment ending on 30 June 2020, with reference to the Income Tax Act No. 58 of 1962. Support your discussion with the necessary calculations and section numbers. You may ignore the effect of section 18A of the Income Tax Act No. 58 of 1962. You may ignore any value-added tax effects

QUESTION 1 Happy Times Binoculars (Pty) Ltd (Happy Times) is a resident company in South Africa that buys and sells binoculars for the tourist market. The company's premises are situated at the V&A Waterfront in Cape Town. Happy Times has a 30 June year end. The tourist market in South Africa has boomed with many tourists visiting game reserves. Bird watching and game watching is trending with these tourists and to have a proper pair of binoculars for these purposes is simply a must. Happy Times couldn't be happier about the current state of affairs and therefore entered into a big contract with a German binocular supplier that only uses top quality lenses for their products. The following transactions were entered into: 1. Happy Times ordered 1 000 binoculars at 300 each from the German supplier on 1 January 2020. The binoculars were shipped free on board (FOB) on 15 January 2020 and cleared from customs and delivered at Happy Times' premises on 31 January 2020. 2. Repayment of the outstanding balance to the supplier was to take place according to the following arrangement: 31 March 2020: 50% of the 300 000 30 September 2020: 50% of the 300 000 3. Happy Times was a bit nervous about the ruling exchange rates as there were rumours of a downgrade of South Africa's credit ratings. The company therefore entered into a forward exchange contract (FEC) to hedge the risk for the payment due on 30 September 2020. A 9-month FEC was entered into at a rate of R16.5674 on 1 January 2020. 4. Happy Times' cash flow was normally not so good during the first half of the year and therefore the company decided to take out a loan at a local bank to cover the settlement of the first payment to the supplier due on 31 March 2020. The loan agreement entered into on 31 March 2020 was repayable to the bank in two equal payments of R1 532 753 each on 30 June 2020 and 30 September 2020 respectively. 5. At year end on 30 June 2020, 520 of the binoculars from this consignment were sold at a selling price of R5 500 each. 6. Happy Times decided to donate some of these binoculars that were ordered from the German supplier in January 2020 (refer to note 1) to a children's home in Cape Town. An anonymous donor sponsored the high school children of the children's home on an all-expenses paid trip to the Kruger National Park. Happy Times therefore gave three of the binoculars for free to the children's home on 31 May 2020. It was an anonymous donation that held no business advantage for Happy Times. The market value of these binoculars were R5 600 each on 31 May 2020. The children's home is a registered public benefit organisation and supplied Happy Homes with all the necessary receipts as required by the Income Tax Act No. 58 of 1962. Ruling exchange rates were as follows: Date Spot rate Period Market-related forward rate for similar FEC 1 = R16.5674 Nine months 1 January 2020 15 January 2020 31 January 2020 31 March 2020 31 May 2020 30 June 2020 1 July 2019 30 June 2020 (average) 30 September 2020 1 = R15.71564 1= R16.04225 1= R16.66620 1= R19.69511 1 = R21.5267 1 = R20.0389 Six months 1= R20.2340 1 = R22.6166 Three months 1 = R17.5820 1 = R23.6810 1 = R24.6210 Maturity QUESTION 1 Happy Times Binoculars (Pty) Ltd (Happy Times) is a resident company in South Africa that buys and sells binoculars for the tourist market. The company's premises are situated at the V&A Waterfront in Cape Town. Happy Times has a 30 June year end. The tourist market in South Africa has boomed with many tourists visiting game reserves. Bird watching and game watching is trending with these tourists and to have a proper pair of binoculars for these purposes is simply a must. Happy Times couldn't be happier about the current state of affairs and therefore entered into a big contract with a German binocular supplier that only uses top quality lenses for their products. The following transactions were entered into: 1. Happy Times ordered 1 000 binoculars at 300 each from the German supplier on 1 January 2020. The binoculars were shipped free on board (FOB) on 15 January 2020 and cleared from customs and delivered at Happy Times' premises on 31 January 2020. 2. Repayment of the outstanding balance to the supplier was to take place according to the following arrangement: 31 March 2020: 50% of the 300 000 30 September 2020: 50% of the 300 000 3. Happy Times was a bit nervous about the ruling exchange rates as there were rumours of a downgrade of South Africa's credit ratings. The company therefore entered into a forward exchange contract (FEC) to hedge the risk for the payment due on 30 September 2020. A 9-month FEC was entered into at a rate of R16.5674 on 1 January 2020. 4. Happy Times' cash flow was normally not so good during the first half of the year and therefore the company decided to take out a loan at a local bank to cover the settlement of the first payment to the supplier due on 31 March 2020. The loan agreement entered into on 31 March 2020 was repayable to the bank in two equal payments of R1 532 753 each on 30 June 2020 and 30 September 2020 respectively. 5. At year end on 30 June 2020, 520 of the binoculars from this consignment were sold at a selling price of R5 500 each. 6. Happy Times decided to donate some of these binoculars that were ordered from the German supplier in January 2020 (refer to note 1) to a children's home in Cape Town. An anonymous donor sponsored the high school children of the children's home on an all-expenses paid trip to the Kruger National Park. Happy Times therefore gave three of the binoculars for free to the children's home on 31 May 2020. It was an anonymous donation that held no business advantage for Happy Times. The market value of these binoculars were R5 600 each on 31 May 2020. The children's home is a registered public benefit organisation and supplied Happy Homes with all the necessary receipts as required by the Income Tax Act No. 58 of 1962. Ruling exchange rates were as follows: Date Spot rate Period Market-related forward rate for similar FEC 1 = R16.5674 Nine months 1 January 2020 15 January 2020 31 January 2020 31 March 2020 31 May 2020 30 June 2020 1 July 2019 30 June 2020 (average) 30 September 2020 1 = R15.71564 1= R16.04225 1= R16.66620 1= R19.69511 1 = R21.5267 1 = R20.0389 Six months 1= R20.2340 1 = R22.6166 Three months 1 = R17.5820 1 = R23.6810 1 = R24.6210 Maturity