Stitch (Pty) Ltd (Stitch) is a retailer of industrial machinery. The machinery sold by Stitch is purchased from local manufacturers. In recent years, Stitch has also started manufacturing machines for the retail market. Stitch has two retail outlets: one in Bloemfontein and one in East London. The manufacturing operations as well as bulk storage of stock is housed in a building in Bloemfontein. Stitch (Pty) Ltd is a registered VAT vendor, and all amounts include VAT unless stated otherwise. The following information is provided for the year ended 28 February 2021:

1. Sales

R33 062 500

2. Purchases as cost

- Machines for retail

R13 225 000

- Components for the manufacturing process (raw material)

R2 645 000

- Consumable stores

R661 250

- A new manufacturing machine A (for use in the manufacturing process a capital asset)

R264 500

- Spare parts for manufacturing machine A

R39 675

3. On 1 June 2020, Stitch removed one of the machines that it had acquired for resale from stock and installed it in the factory for use in the manufacturing process. The machine had been acquired in March 2020 for R115 000 (excl VAT). At the time that it was taken out of stock, the machines market value, excluding VAT, was R149 500.

4. Opening stock on hand at 1 March 2020 was as follows:

- Machines for retail (excluding VAT)

R2 300 000

- Work in progress (i.e. machines being manufactured) (excluding VAT)

R575 000

- Consumable stores (excluding VAT)

R23 000

5. Labour and direct overhead costs in respect of the manufacturing process were R4 600 000 (excluding VAT) for the period 1 March 2020 to 28 February 2021.

6. Stock on hand (at cost) on 28 February 2021 comprised:

- Machines acquired for retail. A certain model of machine was obsolete. There were two such machines on hand. The machines had csot R26 450 each. The Commissioner will allow these machines to be reflected at 50% of their cost.

R1 613 450

- Work in progress (excluding VAT)

R57 500

- Spare parts

R39 675

- Consumable stores (excluding VAT)

R172 500

7. Apart from the information provided above, Stitch had tax allowances and deductions of R3 220 000 (excluding VAT) for the year.

YOU ARE REQUIRED TO choose the correct answer:

Taxable income for the 2021 year of assessment of Sticth (Pty) Ltd will amount to:

R8 484 700

R5 287 700

R5 624 700

None of the answers is correct