QUESTION $3(30$ marks, $54$ minutes$)$

Morofeng $($Pty$)$ Ltd $($MF$)$ manufactures solar products. The company$$s manufacturing activities

has been approved by SARS as a qualifying process of manufacture. The company is not a small

business corporation as defined in section $12$E of the Income Tax Act, and its financial year

ends on $31$ March $2024.$ MF is a registered VAT vendor making only taxable supplies. Where

necessary, MF obtained valid tax invoices and the required documentation for all its transactions.

All amounts exclude VAT where applicable, unless specifically stated otherwise.

You are provided with a list of receipts, accruals, expenditure, and costs of Morofeng $($Pty$)$ Ltd for

the $2024$ financial year.

Note R

Receipts and accruals

Sales $2998527$

Dividends received $175850$

Prize won $255000$

Rental received $7251230$

Expenditure and costs $(2881037)$

Purchases of raw material $3(1251872)$

Restraint of trade $4(387600)$

Doubtful debts $5(260625)$

Legal expenses $6(72890)$

Salaries $(755270)$

Depreciation $7(152780)$

Notes:

$1.$ Dividends received

MF received a local dividend of R$45350$ in respect of a $30\%$ shareholding, which the company has in Lubelo $($a South African incorporated company$).$ MF also received a foreign

dividend of R$30500$ from a company which is effectively managed in Sweden where MF

owns $14\%$ of the equity shares but holds no voting rights in that foreign company.

$2.$ Prize won

MF received an amount of R$55000$ when they were awarded first prize as $$Solar Manufacturer$-$of$-$the$-$year$.$ The prize was for the company$$s innovation in sustainable energy

conservation.

$3.$ Purchases of raw material

Opening stock $($at cost price$)$

R

$562926$

Purchases $1251872$

Closing stock $($at cost price$)625523$

The market value of the closing stock is R$622250.$

QUESTION $3($continued$)$

$4.$ Restraint of trade

MF made the following restraint of trade payments:

R

$$ Refilwe Mabane, who is the retiring financial director of MF$.260000$

Only R$210000$ was included as income in the hands of Refilwe Mabane.

The company restrained her from competing with MF for a period of

four years.

Battery Solutions $($Pty$)$ Ltd $($not a personal service provider$),$ a start$-$up

small business that will be manufacturing solar batteries. The company

is restrained from competing with MF for a period of two years. $127600$

$5.$ Doubtful debts

The debtor$$s clerk indicated that the list of doubtful debts amounted to R$260625$ as at

$31$ March $2024.$ MF does not apply IFRS $9$ for financial reporting purposes, and $75\%$ of the

total amount has been in arrears for more than $120$ days. The rest of the debtors have not

been in arrears for more than $60$ days. The doubtful debt allowance claimed for normal

income tax purposes in the previous year of assessment $(2023)$ amounted to R$57250.$ MF

is not in possession of any tax directive in respect of doubtful debts.

$6.$ Legal expenses

Legal expenses amounting to R$72890$ were paid in connection with the collection of trade

debtors.

$7.$ Assets

$$ On $1$ May $2022,$ MF purchased and brought into use a new delivery vehicle for

R$402500($including VAT$).$ The vehicle was scrapped on $1$ February $2024,$ after it was

severely damaged in an accident. The company did not have any insurance for the

delivery vehicle.

$$ MF purchased a brand$-$new solar panel assembly machine that is specifically designed

to manufacture the high$-$quality solar panels. This machine was purchased on

$1$ June $2023$ for R$565000.$ The machine was brought into use on the same date.

$$ On $1$ August $2023,$ MF completed the construction of seven apartments for R$325000$

each in one residential building situated close to its factory in Midrand, South Africa. All

the apartments were rented out from $1$ September $2023.$ The rental amount received for

these apartments amounted to R$251230$ in aggregate during the $2024$ year of

assessment.

QUESTION $3($continued$)$

Binding General Ruling: No$.7$ makes provision for the following write$-$off period:

$$ Delivery vehicles.................................................................. $4$ years

Other information:

$$ MF was in desperate need of storage space and rented part of a commercial building to

store their manufactured solar products. A monthly rental of R$12570$ was paid to YSpace $($Pty$)$ Ltd from $1$ November $2023.$ The total rental amount paid was not included

in the list of receipts, accruals, expenditure, and costs.

$$ MF made a total provisional tax payment of R$150750$ to SARS for the $2024$ year of

assessment.

REQUIRED:

Calculate the normal income tax liability of Morofeng $($Pty$)$ Ltd for the $2024$ year

of assessment. If an amount is exempt from normal income tax or not deductible

for income tax purposes, please provide a reason.

Note: Morofeng $($Pty$)$ Ltd will make use of any possible election$($s$)$ that would

legally minimise its tax liability. Ignore any capital gains tax implications.