QUESTION $6\mathrm{.}2(36$ marks, $64$ minutes$)$

Fafa $($Pty$)$ Ltd $($Fafa$)$ manufactures basketballs. The company's manufacturing process has been approved by SARS as a qualifying process of manufacture. Fafa is not a small business corporation as defined in section $12$E of the Income Tax Act No$.58$ of $1962.$ Fafa $($Pty$)$ Ltd is a registered VAT vendor, making only taxable supplies. All transactions are conducted with registered VAT vendors, unless specifically stated otherwise. Where necessary, Fafa obtained valid tax invoices and the unless specifically stated otherwise. Where required documentation for all its transactions.

Fafa will make use of any possible election$($s$)$ that would legally minimise its tax liability.

The following information is available to calculate the company's taxable income for the $2024$ year of assessment. The company's year$-$end is on the last day of March. All amounts exclude VAT, unless otherwise stated.

Taxable income amounts to R$5200000,$ before taking the information below into account.

Fafa paid pension fund contributions of $R70000$ during the year on behall of an employee. The salaries amounted to $R500000.$

The company paid an annuity of $R75000$ to the wife of an employee who died during the year.

A restraint$-$of$-$trade compensation of $R900000$ was paid to the financial manager who resigned during the year. The restraint is effective for two years and the full amount was included in the financial manager's income on his $2024$ income tax return.

Fafa donated R$400000$ to Sponsor$-$a$-$child, a not$-$for$-$profit organisation, to support their initiative of introducing sporting activities to children in rural areas. Fata received a section $18$ A receipt for the donation made.

Fata entered into a learnership agreement with an employee on $1$ January $2024.$ This employee had concluded a two$-$year learnership agreement with a previous employer at the beginning of April $2022,$ but he resigned from that employer on $31$ December $2023$ and continued leamership with Fata on $31$ March $2024.$ The employee does not have a disability as defined and has an NQF level $3$ qualification.

A trademark licence was renewed on $1$ January $2024$ for R$5000.$ A new trademark was also purchased on $1$ February $2024$ for R$50000.$

$4$

QUESTION $6\mathrm{.}2($continued$)$

Trading stock, which was acquired in the previous year of assessment at a cost of R$800,$ was removed during the year by the managing director for private use. The market value of the trading stock at the date that it was removed was R$1000.$

Fafa also donated trading stock to a local basketball club during the year. This stock had been acquired in the previous year of assessment at a cost of R$7000.$ A section $18$A certificate was not received in respect of this donation. The market value of the trading stock at the date at which it was donated was R$10000.$

The cost price of fixed assets that Fafa used during the year consists of the following:

Manufacturing machine Z purchased new on $1$ May $2023$

$($cost price includes VAT$)$

Truck purchased second$-$hand on $1$ December $2023..............................................513000$

$-$ Burglar alarm purchased $on1$ March $2023,800000$

$60,000$

Manufacturing building purchased on $1$ January $2019................................................2500000$

Manufacturing machine A purchased second$-$hand on $1$ Aprit $2023$

and brought into use on the same day. The machine was not purchased

from a connected person. The machine was sold for R$100000$ to an unconnected

Fafa decided to lease a commercial building from which to sell some of its own manufactured stock and concluded a lease agreement with Property $($Pty$)$ Ltd$.$ The lease period commenced on $1$ August $2023$ for a $10-$year period, with an optional extension period of another five years. In terms of this agreement, Fafa had to pay a lease premium of R$90000$ on $1$ August $2023$ for the right of use of the property. Fata also had to effect improvements on the premises to the value of R$285000$ and pay a monthly rental amounting to $R10000$ from $1$ August $2023.$ Fata value of R$285000$ and pay a monthly rental amounting to $R$ brought the commercial building into use on $1$ August $2023.$

The building improvements commenced on $1$ September $2023$ and they were completed and brought into use on $1$ February $2024.$ The total cost of the improvements was R$305000.$

Fafa received a huge long$-$term order of basketballs from one client during September $2023.$ An instalment credit agreement was concluded, which provides for the payment of a deposit of $25\%$ and the balance $($including the finance charges$)$ over a period of $18$ months. This debtor's outstanding balance on $31$ March $2024$ was R$150000($excluding finance charges$).$ Fata's gross profit percentage is $50\%.$

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