QUESTION $425$ marks

Mr$.$ Arnold is the Chief Accountant of Don Ltd $($Pty$).$ Don$$s Statement of Profit or Loss

and Comprehensive Income for the $2021$ year of assessment, ended on the last day of

February, is as follows:

N$

Income

Sales $800000$

Recovered bad debts $($note a$)15000$

Doubtful debts allowance $2020($note d$)11000$

Local dividends $24000$

Interest received on current account $8000$

$858000$

Expenses

Purchases $(450000)$

Sundry expenses $$ deductible for tax purposes $(80000)$

Rent paid $($note b$)(32000)$

Leasehold improvements $($note b$)(150000)$

Employer contributions $($note c$)(20000)$

Doubtful debts allowance $2020($note d$)(2000)$

Patent $($note e$)(30000)$

Restraint of trade payment $($note g$)(10000)$

Legal fees $($note h$)(9000)$

Annuities $($note i$)(30000)$

Net profit $45000$

Notes:

a$)$ The bad debt recovered is in respect of a bad debt in $2020.$

b$)$ A lease agreement was entered into on $1$st March $2020$ for the lease of shop

premises for a five$-$year period. The monthly rental indicated was N$$2000$ per

month. The rent included an amount of N$$13000$ as a lease premium. The lease

agreement also provides for improvement to be affected to the value of N$$140000.$ The improvements were completed at a cost of N$$150000$ and brought into use on $1$st May $2020.$

c$)$ Don Ltd $($Pty$)$ contributes towards a pension fund on behalf of the employees.

The Commissioner regards Don$$s approved remuneration as N$$200000.$

d$)$ Included in Don$$s outstanding accounts receivable are doubtful debts of R$30000.$

The previous year$$s amount of doubtful debts was N$$25000.$ Don Ltd $($Pty$)$

allows $10\%$ of the doubtful debts as an allowance.

e$)$ Don Ltd $($Pty$)$ purchased two patents. Patent A was acquired at a cost of R$6000$

on $30$th September $2010,$ and its probable duration of use was estimated at $15$

years. Patent B was purchased at a cost of N$$30000$ on $31$st May $2019,$ with a

useful life of $10$ years.

f$)$ On $1$st July $2020$ Don Ltd $($Pty$)$ paid an amount of N$$80000$ as compensation to

one of its former employees, as a restraint of trade payment, effective for $5$

years. The full amount will be included in the recipient$$s gross income.

g$)$ Legal fees were incurred in drawing up the lease agreement for the shop

premises.

h$)$ Lucas, an employee was injured whilst at work and could not return to his normal

duties. He received an annuity of N$$4000$ per month from $1$st October $2020.$ He

died on $31$st December $2020$ because of the accident and an annuity of N$$2000$

per month was paid to his widow from the following month.

Required:

Calculate the taxable income of Don Ltd $($Pty$)$ for the year of assessment ending $28$

February $2021.$

Supply brief reasons for each item to support your answer and indicate, also with brief

reasons where there are no tax implications or adjustments.

Begin your answer with the net income per the accounting statement of income and expenses. Ignore VAT throughout.

Logical layout and presentation