Pegasus (Pty) Ltd (Pegasus) manufactures unicorn toys and figurines. The company has a 31 December 2020 year of assessment and is not a registered VAT vendor.

On 1 February 2018 the entity manufactured a large life-sized unicorn that stands 1 meter tall. The unicorn is similar to unicorn statutes normally manufactured by Pegasus. The unicorn was manufactured at a cost of R12 000 for purposes of resale. On 31 December 2018 the market value of the unicorn was R13 000. On 1 May 2019 (when the market value of the unicorn was R14 000) it was decided that this item be moved to the showroom floor and no longer be available for resale. The decision was affected on 1 June 2019 when the unicorn was moved to the showroom floor and held as a decorative item for demonstration purposes from that date. The market value of the item on this date was R15 000. On 31 December 2019 the market value of the unicorn was R18 000.

On 30 November 2020 one of the clients of Pegasus made an offer to purchase the unicorn at a price of R23 000 and Pegasus accepted the offer and sold the unicorn to the client on that date.

If claimable and relevant, a section 11(e) allowance will be claimed over a period of five years.

Which one of the following statements is true?

Select one:

a.

The net impact of this transaction is an increase of R5 000 in the 2020 taxable income of Pegasus.

b.

The net impact of this transaction is an increase of R23 000 in the 2020 taxable income of Pegasus.

c.

The net impact of this transaction is an increase of R6 400 in the 2020 taxable income of Pegasus.

d.

None of the options are correct.

e.

The net impact of this transaction is an increase of R11 000 in the 2020 taxable income of Pegasus.