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Medicraft ( Pty ) Ltd is a manufacturer of medical devices, regarded as a process of manufacture by the South African Revenue Service. The company

Medicraft (Pty) Ltd is a manufacturer of medical devices, regarded as a process of manufacture by the South African Revenue Service. The company is in the process of establishing itself and expanding its product offering. The information below relates to the companys year of assessment ending on 30 April 2024:
1) Medicraft (Pty) Ltd earned revenue of R4300000 from the sale of medical devices.
2) The purchase of raw materials amounted to R1120000 during the year of assessment. 30% of these purchases were made on credit and the company was charged an additional amount of interest of R15700 by one of the suppliers due to late payment.
3) The inventory balances, correctly valued in terms of Section 22 of the Act, were as follows: 01 May 2023 R185000
30 April 2024 R260000
4) Total administration expenses comprised of the following:
R326000 paid to employees in relation to their salaries.
R125000 paid to the companys pension fund on behalf of its employees.
On 1 January 2024 Medicraft (Pty) Ltd entered into an agreement with its sales
manager stipulating that he would not provide his services to any of its competitors for a period of two years. Medicraft paid an amount of R186000 to the sales manager as specified in the agreement.
5) The company had a debtors list of R48900 on 30 April 2024. R13650 were outstanding for less than 60 days, R12500 were aged 61120 days and R22750 were older than 120 days. The company does not apply IFRS 9. The commissioner had allowed a section 11(j) allowance of R23000 in the prior year.
6) Medicraft (Pty) Ltd entered into a lease agreement with Proprop Ltd on 1 May 2021 for its factory. The company paid a lease premium of R120000 for a lease period of 15 years. The annual rental of R144000 is fixed for the lease period.
On 31 October 2023, Medicraft (Pty) Ltd purchased part of a new office block for R950000 to be used as its administration offices.
7) A secondhand manufacturing machine was acquired and put into use by Medicraft (Pty) Ltd on 1 March 2023 for R360000. However, it began to experience malfunctions due to power outages. Consequently, Medicraft (Pty) Ltd decided to sell the machine for R200000 on 1 August 2023.
8) On 1 January 2024, the company paid R32000 to lease a billboard advertising their products for a period of a year.
9) Medicraft (Pty) Ltd submitted their 2022 IT14 tax return late to SARS and was charged penalties amounting to R1000 on 15 May 2023.
10)
Medicraft (Pty) Ltd researched and developed a completely new product to help with measuring blood insulin levels. Research on the new product commenced on
1 September 2023 when the required approval for the project was obtained.
From 1 September 2023 to 30 April 2024 operating research costs amounted to R125000 and salaries paid to administrative staff amounted to R150000. Medicraft (Pty) Ltd purchased a new manufacturing machine for R400000 to be used solely in the manufacturing of this new product. The company funded the research project.
In terms of Section 11D of the Income Tax Act, the following may be claimed in respect of research and development:
A deduction equal to 150% of expenditure incurred directly for research and development.
An accelerated depreciation deduction (that is,50:30:20) for capital expenditure incurred on machinery or plant used for research & development and buildings or improvements at 5% per year.
The Department of Science and Technology must approve the entire 150% deduction. Only expenditure incurred on or after the date of receipt of the application is eligible for this deduction.
11) The company purchased a patent at a cost of R80000 on 1 February 2024 and brought it into use at the same date. The company also renewed its trademark registration on 16 February 2024, at a cost of R11000.
12) Medicraft (Pty) Ltd donated R30000 to a local church and received the relevant section 18A
certificate.
13) Medicraft (Pty) Ltd incurred an assessed loss of R120000 during the 2023 year of assessment.
Required:
Q.3.1 Discuss what amount (if any) of the R186000 Medicraft (Pty) Ltd will be entitled to claim as a deduction for their year of assessment ending 30 April 2024(see note 4).
Show all calculations applicable to your discussion. (10)
Q.3.2 Calculate the normal tax payable by Medicraft (Pty) Ltd for its year of assessment ended 30 April 2024.
Round your final answers to the nearest rand.
Provide brief reasons for any nil effects. Marks will be allocated. (25)

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