Taxation 2B - Case study question

KSG (Pty) Ltd is a South African resident company that trades as a wholesale dealer in electronic appliances. KSG (Pty) Ltd is a registered VAT vendor. KSG (Pty) Ltd Statement of Profit or Loss and other Comprehensive Income for the ended 28 February 2019 is as follows:

Notes R

Sales 1 700 000

Cost of sales 2 (400 000)

Gross profit 300 000

Other income 3 100 000

Less:

Legal expenses 4 (40 000)

Repairs and maintenance 5 (81 750)

Rent paid for trade premises (R18 200)

Wages and salaries (R80 000)

Sundry expenses 6 (25 500)

Profit before tax 154 500

Notes:

1. Sales are made to customers in South Africa as well as to customers in Australia. 80% of sales are made to South African customers and the rest are made to customers in Australia.

2. Cost of sales consist of the following: R
   • Opening stock 200 000
   • Purchases 300 000
   • Closing stock 100 000

3. Investment income consist of the following:
   • Interest received from local bank account 40 000
   • Rent income from letting out office building 60 000

4. Legal expenses of R40 000 were paid to attorneys Snegugu and Gabriel
   • R5 000 of the fee was for the debt collection.
   • R15 000 related to the drawing up of a restraint of trade agreement for an employee who had resigned to set up his own business.
   • R20 000 related to a dispute when one of KSG (Pty) Ltds clients used the company for supplying inferior products. Snegugu and Gabriel successfully defended this action when it was proved that the client did not follow the care instructions.
5. Repairs and maintenance costs
   • KSG (Pty) Ltd pays a maintenance contractor to maintain the four koi ponds on its premises. The maintenance contractor is pad on an annual basis. On 1 December 2018, KSG (Pty) Ltd paid the maintenance contractor R80 000 to maintain the koi ponds from 1 December 2018 to 30 November 2019. This is the only prepaid expense incurred by KSG (Pty) Ltd for its 2019 year of assessment.
   • KSG (Pty) Ltd paid R1 750 to Siphesihle Mchunu for repairing an electrical point that was damaged in a heavy storm.

6. Sundry expenses comprised of standard rated supplies which are all deductible for income tax purposes.

7. All amounts provided in the above Statement of Profit or Loss and other Comprehensive Income are VAT inclusive, where applicable.

Required:

1. Calculate VAT refundable to or payable by KSG (Pty) Ltd.
2. Calculate taxable income of KSG (Pty) Ltd.