Question 7

Delux Dine (Pty) Ltd (Delux Dine) was incorporated in South Africa on 1 April 2021. The company manufactures classic and elegant metal dining chairs and tables. The first chairs were manufactured on 1 June 2021. Delux Dine does not fall within the description of a small business corporation in the Income Tax Act. Delux Dine earned taxable income for the year of assessment ended on 31 March 2022 amounting to R1 540 000 before considering the following items (all amounts exclude VAT at 15% unless otherwise stated):

Factory buildings

Initially, the business started in the backyard of one of the directors. However, due to the demand for their products, they had to expand. On 1 August 2021, a lease agreement was concluded to lease a factory building in Bloemfontein Park at R6 000 per month for 10 years. The lease agreement furthermore makes provision for a renewal period of an additional five years after expiry of the initial contract period. A lease premium of R80 000 was paid on 1 August 2021 and the factory was brought into use on that date.

In terms of the lease agreement, a new wing had to be built onto the existing building for R450 000. The new wing (which increased the production capacity of the building) was completed on 1 February 2022 and was brought into use on that date. The erection cost amounted to 500 000.

Manufacturing machinery

On 1 August 2021, a second-hand machine, machine C, was purchased at a cost of R342 000 from an individual who is not registered for VAT. The installation cost of this machine amounted to R20 000. Delux Dine furthermore spent R32 000 on the installation of a mechanism in machine C that dramatically increased the number of steel desks that can be manufactured per hour. Machine C was brought into use on 15 August 2021.

Irrecoverable debts and legal fees

Legal fees of R35 000 were incurred to recover irrecoverable debts. R5 000 of these legal fees was incurred in respect of a loan to a former employee, and the balance related to trade debtors.

R20 000 due in respect of the loan to the former employee as well as trade debtors amounting to R40 000 was not recovered and must be written off as irrecoverable debt.

REQUIRED

Calculate the taxable income/calculated loss for the current year of assessment (ended 31 March 2022).

Round your answers to the nearest Rand. Show all workings. If an item is not included in the calculation, then reflect the item with a Nil amount.