QUESTION $1$

PART A $(16$ marks, $30$ minutes$)$

Tuppy Plastic $($Pty$)$ Ltd $($Tuppy$)$ is a company that manufactures Tupperware. The financial year ends on the last day of March.

The company is a registered Value$-$Added Tax $($VAT$)$ vendor, on the invoice basis, and has a two$-$month tax period, making $100\%$ taxable supplies.

The following information regarding the December $2023$ to January $2024$ VAT period has been provided to you by the tax manager, Ms Michelle Prinsloo. All amounts are inclusive of VAT, where applicable, unless specifically indicated otherwise.

$1.$ Tuppy sold a machine that was used in its manufacturing process to Mr$.$ Ayob, the majority shareholder, for R$85000.$ Mr$.$ Ayob is not a registered VAT vendor. The company originally acquired the manufacturing machine for R$220000$ on $1$ October $2022.$ Assume that on $31$ December $2023,$ the tax value was R$120000,$ and the open$-$market value was assessed at R$95000.($Reference to the Value$-$Added Tax Act$).2.$ A previously used factory building costing R$4200000$ was purchased from a non$-$vendor. The purchase price and transfer duty of R$450000$ was paid on $31$ January $2024$ when transfer took place into Tuppy$$s name.

$3.$ On $1$ December $2023,$ a new motorcar was acquired for R$650000.$ The use of the motorcar was immediately assigned to Tuppy's marketing manager. The purchase of the motorcar was facilitated through an instalment credit agreement. This agreement required an upfront deposit of R$30000$ due on $1$ January $2024,$ followed by $72$ monthly instalments of R$10500.$

$4.$ On $31$ December $2023,$ equipment with a selling price of R$230000($excluding VAT$)$ was sold to a customer in Zimbabwe. The equipment was consigned and delivered by Tuppy to the customer$$s factory in Zimbabwe. $($Reference to the Value$-$Added Tax Act$).$

$5.$ On $15$ December $2023$ the company experienced a robbery at its premises resulting in the theft of a delivery vehicle valued at R$175000.$ The insurance company compensated them with a cash reimbursement of R$150000($excluding VAT$).$

REQUIRED:

MARKS

Discuss the VAT consequences of the above$-$mentioned transactions for Tuppy Plastic $($Pty$)$ Ltd for the two$-$month VAT period ending January $2024.$

Note:

$$ Support your discussion answers with calculations.

$$ Support the transactions indicated in brackets with references to the relevant sections of the Value$-$Added Tax Act No$.89$ of $1991.$ Provide only the main section reference, the subsections are not required $$ For example $-$ Section $10$ is sufficient, Section $10(13)$ is not required.

$$ You can ignore the time of supply.

$14$

$2$

$5$ TAX$3761$

Test $1$

PART B $(10$ marks, $19$ minutes$)$

The following information relates to the February to March $2024$ VAT period of Tuppy Plastic $($Pty$)$ Ltd$.$ All amounts are inclusive of VAT, where applicable, unless specifically indicated otherwise.

PART B $($continued$)$

$1.$ Tuppy sold $150$ boxes of Tupperware to All Stores Ltd$,$ one of its local customers situated in Limpopo. The selling price of a box of Tupperware includes five different types of Tupperware and each box is sold for R$350.$

$2.$ On $1$ March $2024,$ R$12000$ per month was paid for a two$-$bedroom flat. The flat is provided free of charge to Cindy Nkomo, the secretary of the tax manager, for her personal use.

$3.$ On $20$ March $2024,$ Tuppy purchased large quantities of raw material from Plastic Galore and was billed for the purchase at the end of each month. Tuppy settles the full amount due within $30$ days after billing. The amounts Tuppy settled for February and March $2024$ were R$120000$ and R$95000$ respectively $($both amounts exclude VAT$).$

$4.$ After experiencing several break$-$ins and thefts from its warehouse, the company enhanced security measures by engaging a security company. Security guards now patrol the premises each evening. The total cost for this service over the two$-$months amounted to R$8000.$

$5.$ On $1$ March $2024,$ Tuppy paid R$16000$ to a local service station for the fuel used by the delivery vehicles throughout the two$-$month tax period.

REQUIRED:

MARKS

Prepare the necessary journal entries to record the above transactions in Tuppy Plastic $($Pty$)$ Ltd$$s journal for the two$-$month tax period ending on $31$ March $2024.$ Each journal entry must indicate the Value$-$Added Tax consequences that arise out of the transaction.

Note:

$$ Reference to the relevant legislation $($i$.$e$.,$ section numbers$)$ are not required.

$$ Journal narrations are not required.

$$ Provide brief reasons where a transaction does not give rise to any VAT consequences.

$10$

PART C $(14$ marks, $26$ minutes$)$

Ms$.$ Nelisiwe Chaba, CEO of Tuppy, engages extensively with independent contractors to facilitate the sale of Tupperware products. Given the nature of the business and the significant portion of Tuppy$$s income derived through these contractors, entertainment expenses represent a substantial portion of the company$$s expenditure. Ms$.$ Chaba frequently treats them to business lunches amongst others, with entertainment expenses totalling R$45000$ for the $2024$ year of assessment, broken down as follows:

Lunches R$35000$

Paddle tennis club subscriptions R$6000$

Ms Chaba$$s personal clothing expenses $($Not taxed in her hands$)$ R$4000$

Total R$45000$

$6$ TAX$3761$

Test $1$

PART C $($continued$)$

The paddle tennis club subscription fees are part of the contractor$$s remuneration package. These lunches and club subscriptions fees, have served as incentives for many contractors, leading to numerous significant deals.

REQUIRED:

MARKS

Write a memo to Ms Nelisiwe Chaba discussing whether the entertainment expenses will be deductible by Tuppy Plastic $($Pty$)$ Ltd during its $2024$ year of assessment in terms of the general deduction formula read with section $23$ of the Income Tax Act $($Act $58$ of $1962).$

Note:

$$ Use the format below for the communication, layout, and presentation marks

$$ Refer to relevant case law where applicable

$$ Support the transactions with references to the relevant sections of the Income Tax Act No$.58$ of $1962,$ indicated in brackets for the applicable transaction.

MEMORANDUM

To: TAX$3761$ Student

From: Michelle Prinsloo

Date: $22$ April $2024$