To whom it may concern,

I hope that someone can clear up the following information for me. The question states: "Calculate the income tax liability of ABC (Pty) Ltd for the 2017 year of assessment.Start your answer with net profit before tax of R10 675 600.Provide brief reasons for adjusting or not adjusting the accounting transactions. (South African Tax)"

The following information is then provided, and is included in the Net profit before tax:

Sales 24 500 000

Cost of sales (4 712 500)

Additional Info:

Cost of Sales consisted of the following: R

Opening stock 2 410 000

Add: Purchases 3 835 000

Less: Closing stock (1 532 500)

Equals 4 712 500

Opening stock, purchases and closing stock are all stated at cost.The market value of opening stock was R2 435 000 on 1 June 2016, and on 31 May 2017 the market value of closing stock was R1 510 000.Not included in purchases were aeroplane wheels that was donated to Jetblaster on 1 March 2017.The market value on the date of donation was R752 100.The wheels were not sold at year-end and the market value on 31 May 2017 was R755 000.

So, now that the info is provided, I am confused about how to approach the cost of sales. Please tell me if I am on the right track here. My solution is as follows:

R

Net profit before tax (given) 10 675 600

Sales - No adjustment needed/also included in taxable income -

Cost of Sales - Add back 4 712 500 Opening Stock - at cost (2 410 000) Purchases - fully deductible for tax purposes (3 835 000)

Stock received by donation (no consideration - deemed @ market value) (752 100)

Closing Stock - (1 510 000 + 752 100) 2 262 100

I just want to know if I am on the right track with Cost of Sales and that the format of my solution is indeed correct. Any guidance will be extremely appreciated. Thank you!