Instructions: All answers must be typed in and workings must be shown

Question 1

On Yer Bike (Pty) Ltd is a company specialising in the manufacture and retail of bicycles and accessories. They want to calculate their tax liability for the year of assessment, and have provided the following information from the tax year:

• Their total sales for the year amounted to R2.1 million.
• Salaries and sales commissions totalled R650,000 for the year.
• On the first day of the tax year in question, the company sold a bakkie they had used for deliveries that they had bought exactly two years previously. It cost them R90,000 when they bought it, and they sold it for R63,000.
• Marketing and advertising expenses averaged R12,000 a month.
• They bought a new frame manufacturing machine for R700,000 on 31 January.
• Water, electricity and consumables came to R29,000 for the year.
• After receiving an offer they couldnt refuse, the company sold the industrial building it owned and had been operating out of. Bought in 2007 for R1.3 million, they sold it for R3.8 million during the year. After selling it, they rented a factory in the same industrial park (they moved in on 1 October) - the rental for this was R14,000 a month.
• Phone and communications costs totalled R36,000 for the year.
• They sell to a number of customers on credit. While all of their customers are still operating, after reviewing their customers accounts, theyve realised that, on average, R150,000 worth of accounts are 90 days overdue.
• They spent R42,000 on new desktop computers for the office at the beginning of the year, and feel that these should last four years before needing to be replaced.
• A new smartphone was also bought for the marketing department to allow mobile access when out with clients. This cost R6,000, and is estimated to last two years.

Due to shareholding issues, On Yer Bike (Pty) Ltd does not qualify as a Small Business Corporation. You can also ignore any building allowances, inventory valuation issues, employees tax, and any VAT implications for the purposes of this question. Please note that the Interpretation Note 47 (see pages 1922) can be found in the Module 4 assignment topic section of the Learning website.

1.1 Using the information provided, and assuming that the company takes advantage of any deductions or allowances available to minimize its tax dues, calculate the taxable income of On Yer Bike (Pty) Ltd. You need only calculate from a tax perspective (with taxable income being your final result), and not an accounting one (so, no income statement reconstructions are required). Please use the general format used in the notes (with the numbers and figures in a column down the right-hand side), and show any workings below your calculation.

1.2 With the taxable income calculated in Q1.1, what would the companys tax liability for the year be?

1.3 Assume that accounting profit (before tax) was the same as taxable income. If, after paying tax, the directors decided to pay out half of the remaining net profit as dividends, what would the total dividend amount be? Also, would there be any extra taxes to consider? If so, how much would the shareholders receive in total?