Question $4$

Cape Town Footwear $($Pty$)$ Ltd $("$Cape Town Footwear" or "the company"$)$ is a company

resident in South Africa. It specializes in the manufacture of footwear and operates from a

facility located in Cape Town. The company does not qualify as a small business corporation.

The Commissioner is satisfied that Cape Town Footwear engages in a manufacturing process.

For the year ended $28$ February $2023,$ a taxable profit of $R13,155,000$ was calculated, before

considering the following items $($Value Added Tax $($VAT$)$ is to be ignored$)$:

Dividends Received and Interest Paid:

Throughout the year, the company took out loans to invest in dividend yielding shares. It

received gross dividends of $R25,000$ during the $2023$ year of assessment. Interest paid on

these loans amounted to R$2,000$ for the year. These dividends and interest payments have

not been accounted for in the $R13,155,000$ taxable profit.

Trading Stock:

Trading stock valuations were as follows:

At $1$ March $2022$: R$900,000$

At $28$ February $2023$: R$1,050,000$

Bad Debts:

A trade debtor who owed $R27,000$ went into liquidation, and the amount is deemed

irrecoverable. This debt was written off as bad.

Restraint of Trade Payment:

The company's sales manager resigned to explore other opportunities. Given his strong

customer relationships, a payment of R$250,000$ was made on $1$ March $2022$ to prevent him

from joining a competitor or starting a similar business in the province for five years.

Employee Bonuses:

On $15$ December $2022,$ the company paid R $150,000$ in bonuses to its employees.

Interest and Penalties Paid:

The employees' tax for July $2022$ was paid late, attracting R$1,100$ in interest and penalties

from SARS.New Lease:

A $20$year lease agreement for a larger factory building was signed on $1$ March $2022$ to

accommodate expanded production. A lease premium of R$500,000$ was paid on $1$ March

$2022,$ with monthly rentals of $R50,000$ starting from the same date.

New Machinery Purchased:

To meet increased demand, new machinery was acquired after relocating to the new factory:

Machine A $($new$)$ was bought for R$20,000$ on $1$ May $2022,$ with installation costs of $R5,000.$ It

became operational on $1$ July $2022.$ Machine B $($new$)$ cost R$40,000($including R$2,000$

shipping$),$ purchased on $1$ January $2023.$ Delivery has been delayed due to customs issues.

Machine C $($secondhand$)$ was acquired for R$10,000$ on $1$ December $2022$ and was

immediately operational.

New Equipment Purchased:

Office equipment worth R$14,400$ was purchased and brought into use on $1$ November $2022.$

The Commissioner allows for this equipment to be written off over four years on a straight$-$line

basis.

Annuities Paid:

An annuity of R$24,000$ was paid during the $2023$ year of assessment to the widow of a former

employee who died in a work$-$related accident in a previous year.

Sale of Land:

Land bought for R$800,000$ on $1$ January $2021,$ intended for factory construction, was sold for

R$805,000$ on $1$ April $2022$ after a decision against building due to local unrest.

Assessed Loss Brought Forward:

For the year ended $28$ February $2022,$ Cape Town Footwear reported an assessed loss of

$R2,150,910.$ The company does not have any assessed capital loss from previous years.

Required:

Calculate the normal tax liability of Cape Town Footwear $($Pty$)$ Ltd for the $2023$ year of

assessment, rounding calculations to the nearest Rand.