QUESTION 1 (20 marks)

INCOME TAX ADJUSTMENTS FOR TRADING STOCK (INCLUDING RAW MATERIALS) TAKEN FOR OWN USE OR CONSUMPTION)

Mr. X, a sole trader, owns a retailstore. During the current year of assessment X withdrew 20 cases of juice from stock for use at Xs daughters wedding at which the juice was served free of charge to the guests. The market value of the juice in question was substantially in excess of its cost price. X had accounted for the juice in opening and closing stock in previous years of assessment.

You are required to discuss and evaluate the income tax treatment when the taxpayer takes trading stock for own consumption.

QUESTION 2 (10 marks)

You are required to explain the tax treatment of distribution of trading stock in specie [section 22(8)(b)(iii)]

QUESTION 3 (20 marks) Trading stock applied for a purpose other than for disposal in the ordinary course of trade. A company imports computer parts and assembles them into desktop computers which it sells. The parts and assembled computers comprise trading stock. Some of the computers assembled by the company are used by its sales personnel for demonstration purposes. These computers are used as capital assets and not for disposal in the ordinary course of trade. After two years the demonstration computers are sold to the companys employees at their then prevailing market values. Discuss the tax treatment of trading stock applied for a purpose other than for disposal in the ordinary course of trade.