Question 1 (Marks: 15) You are a partner at BTO, a mediumsized firm, providing assurance and consulting services. At the end of 2018, three retired doctors, Dr Frederik Bernard, Dr Leonard Grey and Dr Cyril Ndlovu, decided to invest their lifetime savings into a mental health and wellness centre. They registered the centre in the form of a private company to trade under the name Rosewood Wellness Centre. The company has a 31 March year end and planned to open its doors for its first group of guests at the beginning of the 2020 financial year. The centre is located on a private estate owned by Dr Frederik Bernard and is an extremely exclusive facility that attracts mainly celebrity Alisters who crave privacy away from the public eye. Therefore, there are very limited number of rooms available and guests need to book well in advance by paying a 50% deposit in order to secure a place at the centre. When the deposit is received the centre then starts working towards tailoring the room in accordance with each guest's individual tastes and preferences. Due to this, if a potential guest cancels their booking, their deposit is forfeited. The centre hosts a variety of treatments and therapies such as yoga classes, spa treatments, hypnotherapy sessions, acupuncture, etc. All these therapies need to be booked in advance as limited time slots are available and bookings are secured via payment of a deposit. Should these bookings be cancelled within 24 hours, the deposit will be refunded. Due to Dr Leonard Grey, being extremely pedantic in nature, requested that two separate bank accounts be opened. One for all gueststay bookings and one for all the deposits received for the treatments offered. By 31 March 2020 Rosewood Wellness Centre hadreceived R3 540 000 worth of deposits for bookings made by potential guests for upcoming stays at the wellness centre and R680 000 worth of deposits in respect of prebookings for treatments offered at the centre.

Q.1.1 Discuss whether the above amounts would be included in the gross income of Rosewood Wellness Centre for the year of assessment ended 31 March 2020. Make reference to relevant case law where applicable. (15)