You have been approached by the Chief Financial Officer of Mega Tyres Limited with a tax query relating to the 2022vyear of assessment. The company's financial year ends on 30 June.

Mega Tyres Limited bought a wheel suspension testing machine for P350 000 on 1 September 2009. In July 2019 the gear motor of the machine broke down and had to be replaced at a cost of P40 000. The new gear motor was more advanced and vastly improved the performance of the machine. The commissioner General disallowed the treatment of the cost as a repair but as capital expenditure. The new gear motor was installed on 1 September 2019.

On 1 October 2021 Mega Tyres sold the machinevfor its market value of P400 000. The market value was significantly high because of the advanced nature of the gear motor installed.

The sales proceeds were utilized to fund the purchase of a replacement machine at a cost of P540,000 in December 2021. The new machine also qualify for capital allowances at the rate of 15%.

Mega Tyres Limited had unrelieved assessed capital loss incurred in 2021 tax yearvof P150,000. The accounts clerk of the company is not surevwhether any tax be payable with respect to the disposal of the machine on 1 October 2021 or the income tax effect with respect to the machine acquired in December 2021.

REQUIRED

Show detailed computations together with relevant explanations of the tax consequences of the disposal on 1 October 2021 and any tax effects ariding from the purchase of the new machine in December 2021. Indicate any options if any that may be elected to minimize tax payable. (15markd)