QUESTION THREE [25]

During Steak-Out CCs 2021 financial year, it suffered from numerous power failures. It was then unable to prepare the food ordered by many customers who were dining in its restaurant.

As a result of this inconvenience, and to prevent further loss of revenue, Steak-Out CC purchased its own generator (a machine for converting mechanical energy into electricity).

During Steak-Out CCs 2022 year of assessment, it was forced to repair its generator with the replacement of a major part.

Steak-Out CC recorded the purchase of its generator in accordance with IAS 16 (Property, Plant & Equipment). As far as the repaired part is concerned, the following details as set out in its Property, Plant and Equipment Account are relevant:

The original cost of the part that had to be replaced was R80 000.

Accumulated Depreciation on it that was recognized for accounting purposes was R30 000, made up of R20 000 in its 2021 financial year and R10 000 in its 2022 financial year.

On its de-recognition, R50 000 was reflected in its statement of profit or loss and other comprehensive income as an impairment.

The replacement part cost R90 000 and it was capitalized into its Property, Plant and Equipment Account.

Depreciation on the replacement part for its 2022 year of assessment was R11 250.

As reflected in the information above, Steak-Out CCs statement of profit or loss and other comprehensive income was expensed with R71 250,

Depreciation of R10 000 on the original part that had to be replaced,

A loss of R50 000 suffered on the original part that has to be replaced, and

A depreciation of R11 250 on the replacement part.

On Steak-Out CCs statement of financial position, the value of this part of its generator has increased from R60 000 to R78 750 ((R60 000-R10 000-R50 000) + (R90 000-R11 250).

REQUIRED: 3.1

Detail the correct tax treatment of Steak-Out CCs above transactions supported by determinations when necessary. Also explain how its total comprehensive income needs to be adjusted to determine its taxable income.