QUESTION 1 [40 MARKS] Campers CC (hereafter Campers), is a resident of the Republic. It is a Durban-based manufacturer of camping equipment and other outdoor products for the local and foreign markets. It is registered with SARS as a vendor for value-added tax (VAT vendor) and Income Tax purposes. All amounts are EXCLUDING VAT, unless otherwise indicated. Campers is NOT a small business corporation (SBC) Members of CC Fanie Veldman holds a 75% interest in Campers. Five business friends of Fanie Veldman each own 5% interest in it. One of the five members, Piet Berg, is employed by Campers on a full-time basis. The other four are sleeping partners in its business. Financial information The following information is provided for Camperss financial year ended 28 February 2021: Camperss net income from manufacturing operations was R1 280 000 before adjusting for the following information: Note R Advertising 1 32 000 Interest 2 150 100 Housing erection cost 3 2 430 000 Bad debts 4 6 300 Rentals incurred 5 20 000 Premium incurred 5 7 200 Improvements incurred 5 585 750 Annuity incurred 6 6 600 Foreign marketing expenditure 7 29 112 Directors salaries and fees 8 496 000 Dividend declared and paid to members on 31 December 2020 20 000 Local dividend accrued form an investment in a South African company it accrued on 30 November 2020 12 000 Notes 1. Camperss advertising expenditure consisted of two major amounts: An amount of R33 000 paid for advertising space in local newspapers and trade and technical magazines. An amount of R120 000 paid, in advance, to O Net Television Limited for a series of advertisements, which would only be produced and aired during October and December 2021. 2. Interest incurred by Campers was made up as follows: Interest of R18 000 on a loan from Fanie Veldman to finance the original machinery purchased. Interest of R10 500 on a loan from Fanie Veldman to finance the purchase of raw materials and trading stock. Interest of R1 600 on a loan from a local bank obtained to finance the payment of dividend declared and paid to its members. Interest of R120 000 on a local loan obtained to finance the erection of block of six identical flats to house six employees (see note 3 below). 3. During Camperss 2021 year of assessment it erected a block of six identical flats to house six employees, including Piet Berg. The block cost R2 430 000. Each flat cost R405 000. These were occupied as from 1 November 2020. It had purchased the land in a previous year of assessment. 4. Campers have included the following amounts in their bad debts list (Campers does not apply IFRS 9): APK CC, a trade debtor who went insolvent during the year 5 200 One of its foreman who left its employment without repaying his loan 300 John Perry, also a trade debtor who, although he has not yet been declared insolvent, is rumoured, to be in financial difficulties. His debt has been outstanding for 90 days. 800 6 300 5. On 1 May 2020 Campers entered into a 12-year lease agreement with a landlord (whose receipts and accruals constitute income as defined) for factory premises adjacent to its own factory. The monthly rental was R2 000. In addition, a lease premium of R7 200 was payable on commencement of the lease. Campers was also contractually obliged to effect improvements valued at R532 500 to the property. The erection of these improvements commenced on 1 May 2020. They were completed on 30 June 2020 at a cost of R585 750. Campers brought the leased premises into use on 1 May 2020 and the improvements, that increased the industrial capacity of its factory by 25%, were used by it from 1 July 2020. 6. As a result of a freak accident in Camperss factory on 1 March 2020, it awarded an annuity of R7 200 (payable at a rate of R600 a month) as from 1 April 2020 to the widow of an employee who was killed in the accident. It is not its policy to make payments of this nature. This commitment was made solely due to the widows financial position. 7. During its 2021 year of assessment Campers registered as an exporter. It incurred the following expenditure in connection with its export trade: Advertising in a trade journal in Namibia 3 512 Participating in a trade fair in Malawi 1 800 Capital costs of setting up an agency in Australia 23 800 29 112 8. Campers paid its directors salaries and fees amounting to R496 000. 9. An inspection of Camperss fixed assets register revealed the following: 9.1 A factory building has been erected at a cost of R960 000. Its erection had commenced on 1 September 2017. It was completed and brought into use on 1 February 2020. 9.2 Its plant and machinery all used in the process of manufacture, had a tax value at 1 March 2020 of R151 000. Its original cost was R250 000. Included in this R151 000 tax value was a machine that cost R15 000, and with a tax value of R9 000 on 1 March 2020. This is the machine that was destroyed in the freak accident during the early hours of 1 March 2020, mentioned in note 6 above. The machine (which had not been used on the day of the accident) was purchased on 1 February 2020. The insurer awarded R14 000 and the company elected to apply paragraph 65 of the Eighth Schedule. 9.3 Machine A was purchased new for R18 000 on 31 March 2020 to replace the destroyed machine. It was brought into use on 30 April 2020, after additional installation costs of R2 500 had been incurred. 9.4 On 1 June 2020 Campers purchased (and brought into use) a new delivery vehicle for R400 200 (including VAT). This delivery vehicle would replace an existing delivery vehicle that was sold for R5 000 on 31 May 2020. The original price of the delivery vehicle that was sold was R32 000 (excluding VAT) and its tax value at 1 March 2020 was R8 000. Binding General Note 7 allows a four-year write-off period for delivery vehicles. YOU ARE REQUIRED TO determine Campers CCs normal tax liability for its 2021 year of assessment. Commence your determination with the net income from manufacturing operations of R1 280 000. Clearly indicate where an amount has no tax effect. SOURCE