QUESTION 1 (40 Marks) Tirisano (Pty) Ltd (Tirisano) is a South African resident company that specialises in the production of aluminium. The aluminium is sold mainly to aluminium window and door frame manufacturers as well other aluminium products manufacturers. The company is registered as a category B vendor for Value-Added Tax (VAT) purposes. The company makes only taxable supplies. The South African Revenue Service (SARS) considers Tirisanos manufacturing process as an approved process of manufacture. Tirisano is not a Small Business Corporation as defined and its financial year ends on 31 March every year. All amounts exclude VAT, unless stated otherwise. The profit before tax for the financial year ended 31 March 2023 amounted to R4 103 270, before considering the following information: 1. Cost of sales: The cost of sales amount taken into account in calculating the profit before tax figure above, was determined as follows:

R Opening inventory @ cost 480 000 Purchases 1 450 000 Closing inventory @cost (620 000) Cost of sales 1 310 000 The following information relating to trading stock was not considered in the calculation of the cost of sales above:

R Opening inventory @Market value 540 000 Closing inventory @Market Value 530 000

2. Tirisano entered into learnership agreements with two employees. Employee A (not disabled as defined) entered into a two year, NQF level 4 learnership. The learnership was signed on 30 April 2021. The learner successfully completed on 31 March 2023.

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Employee B (disabled as defined) entered into a one year, NQF level 9 learnership. The learnership agreement was concluded on 1 January 2023.

Both agreements comply with all the necessary legislative requirements and they are registered.

3. Tirisano was involved in the research and development of new cost-effective aluminium manufacturing processes. The research and development process commenced on 1 June 2022 and an application was sent to the Department of Science and Technology the same day. The process was approved by the Minister of Science and Technology on 30 December 2022 and is in the production of income. The costs incurred on the project up to the end of the financial year are as follows:

R Operating research expenses 102 000 Machinery (new and unused) 662 840 Staff administration costs 844 700 Included in the staff administration cost is an amount of R280 000 paid to researchers working on the research process. 4. Doubtful debts: During the 2023 financial year, Tirisano provided for doubtful debts amounting to R220 800. Tirisano received a doubtful debt allowance of R72 580 in the 2022 financial year. Tirisano does not apply IFRS 9 accounting standards and the list of outstanding debts on 31 March 2023 amounted to R780 463. This amount has been in arrears for 80 days, but not more than 120 days. An amount of R92 450 was written-off as irrecoverable debt in the 2023 financial year. Bad debts recovered in the current year amounted to R16 225.

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5. An amount of R216 000 as shown in the statement of profit or loss and other comprehensive income, was paid on 2 January 2023. The amount was for the insurance premium for the period 1 January 2023 to 31 December 2023.

6. The following is a list of assets subject to wear and tear:

Asset Details Machine CR

Machine JZ

Machine TM

Delivery vehicle

Computer

The machine was purchased second-hand for R1 380 000 (Including VAT) on 1 December 2022 and brought into use on the same day.

The machine was sold for R400 000 on 1 January 2023. The machine had originally been bought brand new for R1 035 000 (including VAT) on 1 March 2022 and brought into use on the same day.

The machine was purchased to replace machine JZ. The machine was purchased for R1 350 000 (including VAT) on 31 March 2023. The transport costs amounted to R65 000, and installation costs were R33 200. The machine was only brought into use on 15 April 2023.

A delivery vehicle, purchased for R540 000 on 30 July 2020, is used to deliver finished products from the factory to the clients premises.

A computer acquired on 1 April 2022 at a cost price of R30 000 was distributed to a shareholder as a dividend on 31 March 2023. Its tax value on 31 March 2023 was determined as R20 000 and the market value was R32 200. The taxable capital gain arising from the disposal amounted to R1 760.

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7. Immovable property Asset Details Low-cost residential unit

Commercial building

On 1 May 2022, Tirisano sold a low-cost residential unit (just after it was erected at a cost of R260 000) to an employee for R260 000. Tirisano provided an interest-free loan account to the employee to finance the transaction. The employee made no repayment in 2023.

Tirisano entered into a lease agreement with Sakhile Properties Ltd, to lease a commercial building from which to house its manufacturing processes. The lease period commenced on 1 September 2022 for a 15-year period, with an optional extension period of another 3 years. In terms of this agreement, Tirisano had to pay a lease premium of R120 000 on 1 September 2022 for the right of use of the property. The lease premium will constitute income of Sakhile Properties Ltd.

Tirisano also had to effect improvements on the premises to the value of R450 000 and pay a monthly rental amounting to R12 000 from 1 September 2022. The value of improvements will be income in the hands of Sakhile Properties Ltd. Tirisano brought the commercial building into use on 1 September 2022.

The building improvements commenced on 1 October 2022, and they were completed and brought into use on 1 February 2023. The total cost of the improvements was R500 000.

8. The company received dividends amounting to R120 000 from a 10% shareholding in Reatile Ltd, a South African resident company listed on the Johannesburg Stock Exchange.

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Additional information: Binding General Ruling: No. 7 lists the following write-off periods: - Delivery vehicles: 4 years - Computers: 3 years

REQUIRED Marks Calculate the normal tax liability of Tirisano (Pty) Ltd for the year of assessment ending on 31 March 2023. Start your answer with the profit before tax amount of R4 103 270.

Provide brief reasons where amounts have a nil effect on profit before tax. Tirisano (Pty) Ltd will always elect any option available to legally minimise its normal tax liability. Ignore dividends tax