Max Style (Pty) Ltd (Max Style) is a South African company that manufactures footwear. They are based in Durban, KwaZulu-Natal. The companys year of assessment ends on 28 February 2022. It is not a small business corporation as defined in the Income Tax Act. The companys taxable income before taking the tax consequences for each of the below assets and transactions into account is R4 165 000. The following information is provided to you for the companys current (2022) year of assessment: 1. Moveable assets Below is a summary of specific assets for which all the tax consequences (including the wear and tear and capital allowances) must still be considered for the current year. Asset Cost Purchase and brought into use date Additional Information Manufacturing machine Alpha R136 000 1 January 2022 Purchased second hand Manufacturing machine Beta R225 000 15 July 2021 (see note 2) Purchased new (see note 2) Manufacturing machine Delta R144 500 2 December 2020 Purchased new Catering equipment for the staff canteen R6 200 2 May 2021 Purchased new Computer equipment R200 000 1 October 2021 Purchased second hand Office furniture R45 000 1 December 2020 Purchased new Manufacturing machine Gamma R67 000 30 April 2018 Purchased second hand The machine was affected by water damage due to a water leakage through a section of the factory roof after a bad storm. The machine was scrapped on 6 January 2022 and insurance proceeds of R3 500 for the machine was received on 20 January 2022. 2. Buildings On the next page is a summary of transactions relating to the factory buildings for which all the tax consequences (including the capital allowances) must still be considered for the current year: QUESTION 4 continued) Asset Cost Purchase and brought into use date Additional Information Factory building -KZN1 R2 000 000 1 March 2010 The factory building was purchased new for R2 000 000 from a developer. An additional 50 square meters (costing R180 000) was built at the back end of the factory building. This space was completed andbrought into use on 1 August 2021. Manufacturing machine Beta was delivered and placed into this additional space on3 August 2021 by means of a crane. Transport and crane hire costs of R8 500 were incurred. Machine Beta was brought into use on 3 August 2021. The section of the factory roof affected by the bad storm was fixed at a cost of R36 000 on10 January 2022. Factory building -KZN2 R3 200 000 20 January 2022 Max Style decided to sell the KZN1 factory building and purchased a bigger, used factory, the KZN2. The seller of KZN2 had erected the factory three years earlier and claimed capital allowances on this building. The sale of the KZN1 factory building went through on 26 February 2022 for an amount of R1 800 000. Assume the tax value of KZN1 at the date of sale was R971 000 and that manufacturing machine Beta was moved to the KZN2 factory building on 10 March 2022. 3. Interest Interest earned on bank account R7 000 This amount is reflected on the bank statement dated 28 February 2022. Interest paid on loan account R25 000 This amount is interest paid that has accumulated for the full year on a loan that Max Style took out to fund the purchase of a 25% share in a start-up company on 1 April 2021. The start-up company has already declared dividendsof R250 000 to its shareholders registered as of 1 February 2022. QUESTION 4 continued) 4. Amounts relating to debtors Description Amount Additional information Trade debtors written off R22 220 Relates to debtors older than 150 days Staff loans written off R4 785 Relates to staff members that absconded (left without trace). Provision for doubtful debts as at -28 February 2022 R167 000 The full provision comprises of debtors that are older than 120 days. (Assume IFRS 9 is not being applied.) Upon inspection of the 2021 tax assessment, you notice that R70 000 was claimed in respectof the provision for doubtful debts. 5. Employee related costs Payment to Mr DesignerX R500 000 Mr DesignerX was paid an amount of R500 000 (on 1 July 2021) restraining him from working for another footwear company for a six-month period. Payments made to Miss KG R15 000 This amount is paid every month to one of the companys retired founding members 13-year- old daughter. Medical aid contributions 1 650 000 Made to a medical aid scheme for the benefit of all the companys employees. 6. Inventory Market value Cost Total inventory amount At 28 February 2021 R651 800 (this amount was reflected in the 2021 tax assessment) R700 000 Finished shoes limited range This entire limited range was sold to a large discount store for R40 000 on 14 February 2022. At 14 February 2022 R75 000 R30 000 Work in progress shoes standard Range At 28 February 2022 R36 000 R28 000 Finished shoes standard range At 28 February 2022 R348 700 352 000 QUESTION 4 continued) Additional information: The write-off period of assets according to the Binding General Ruling no.7 is as follows: Computer equipment: 3 years Catering equipment: 4 years Furniture & fittings 6 years Max Style elected the following, where applicable: scrapping allowance in terms of section 11(o) and deferral of recoupment of building allowances in terms of section 13(3). REQUIRED: MARKS Calculate the income tax liability of Max Style (Pty) Ltd for the year of assessment ending 28 February 2022. Start your answer with the taxable income of R4 165 000 and provide brief reasons where amounts are exempt or not deductible.