This exam paper is in two sections. You should try to complete all tasks in both sections.

Transcription

1 Exam Diploma in Accounting (Diploma Pathway) Preparing Business Taxation Computations South Africa (BTC-SA) 2003 Standards Tuesday 19 June 2007 (morning) Time allowed - 3 hours plus 15 minutes reading time Please complete the following information in BLOCK CAPITALS: Student member number Desk number Venue code Date Venue name Important: This exam paper is in two sections. You should try to complete all tasks in both sections. We recommend that you use the 15 minutes reading time to study the exam paper fully and carefully so that you understand what to do for each task. However, you may begin to write your answers within the reading time, if you wish. We strongly recommend that you use a pen rather than a pencil. You may not use programmable calculators or dictionaries in the exam. Do NOT open this paper until instructed to do so by the Supervisor. BTC-SA

2 This exam paper is in TWO sections. You must show competence in both sections. So, try to complete EVERY task in BOTH sections. Section 1 contains 5 tasks and Section 2 contains 6 tasks. You should spend about 100 minutes on Section 1 and about 80 minutes on Section 2. There is blank space for your workings on pages 13, 14, 22 and 23, but you should include all essential calculations in your answers. 2

3 Note: This page is perforated. You may remove it for easy reference. Taxation tables for business tax 2006/07 Corporation tax: Company rate for standard companies 29% Small business corporations rate: R0 R40,000 0% R40,001 R300,000 10% above R40,000 R300,000+ R plus 29% above R300,000 STC 12.5% Personal Service Companies rate 34% Donations rate 20% VAT 14% Interest official rate 8% Interest prescribed rate underpayment 10.5% Interest prescribed rate overpayment 6.5% 3

4 Note: This page is perforated. You may remove it for easy reference. Schedule to Practice Note No 19 Write-Off Periods Acceptable to Inland Revenue Item Period of write-off Item Period of write-off (number of years) (number of years) Adding machines 6 Milling machines 6 Air conditioners (window type, moving parts only) 6 Mobile caravans 5 Aircraft: Light passenger/commercial/helicopters 4 Mobile cranes 4 Arc welding equipment 6 Mobile refrigeration units 4 Balers 6 Motorcycles 4 Battery chargers 5 Motorised chain saws 4 Bicycles 4 Motorised concrete mixers 3 Bulldozers 3 Motor mowers 5 Burglar alarms (removable) 10 Musical instruments 5 Calculators 3 Neon signs and advertising boards 10 Cash registers 5 Ovens and heating devices 6 Cellular telephones (practice note ) 3 Ovens for heating food 6 Cheque writing machines 6 Oxygen concentrators (practice note ) 3 Cinema equipment 5 Paintings (valuable) 25 Cold drink dispensers 6 Pallets 4 Compressors 4 Passenger cars 5 Computers (main frame) 5 Patterns, tooling and dies 3 Computers (personal computers) 3 Perforating equipment 6 Computers software (main frames): Photocopying equipment 5 Purchased 3 Photographic equipment 6 Self-developed 1 Planers 6 Computers software (personal computers) 2 Pleasure craft etc. 12 Concrete transit mixers 3 Portable concrete mixers 4 Containers (practice note ) 5 Ploughs 6 Crop sprayers 6 Portable generators 5 Curtains 5 Portable safes 25 Debarking equipment 4 Power tools (hand operated) 5 Delivery vehicles 4 Public address systems 5 Demountable partitions 6 Race horses (practice note ) 4 Dental and doctors equipment 5 Radio communication equipment 5 Dictaphones 3 Refrigerated milk tankers 4 Drilling equipment (water) 5 Refrigeration equipment 6 Drills 6 Refrigerators 6 Electric saws 6 Runway lights (practice note ) 5 Electrostatic copiers 6 Sanders 6 Engraving equipment 5 Scales 5 Excavators 4 Security systems (practice note ) 5 Fax machines 3 Seed separators 6 Fertiliser spreaders 6 Sewing machines 6 Fire extinguishers (loose units) 5 Shop fittings 6 Fishing vessels 12 Solar energy units 5 Fitted carpets 6 Special patterns and tooling 2 Fork-lift trucks 4 Spin dryers 6 Front-end loaders 4 Spot welding equipment 6 Furniture and fittings 6 Staff training equipment 5 Gantry cranes 6 Stainless steel containers (transport of liquids) 5 Garden irrigation equipment (movable) 5 Surveyors: Gas cutting equipment 6 Instruments 10 Gas heaters and cookers 6 Field equipment 5 4

5 Note: This page is perforated. You may remove it for easy reference. Gear shapers 6 Tape-recorders 5 Graders 4 Telephone equipment 5 Grinding machines 6 Television and advertising films 4 Guillotines 6 Television sets, video machines and decoders 6 Gymnasium equipment 10 Textbooks 3 Hairdressers equipment 5 Tractors 4 Harvesters 6 Trailers 5 Heat dryers 6 Traxcavators 4 Heating equipment 6 Trucks (heavy duty) 3 Hot water systems (practice note ) 5 Trucks (other) 4 Incubators 6 Truck mounted cranes 4 Ironing and pressing equipment 6 Typewriters 6 Kitchen equipment 6 Vending machines (incl. video game machines) 6 Knitting machines 6 Video cassettes 2 Laboratory research equipment 5 Washing machines 5 Lathes 6 Water distillation and purification plant 12 Laundromat equipment 5 Water tankers 4 Law reports (legal practitioners) p/note 39 5 Water tanks 6 Lift installations (goods) 12 Weighbridges (movable parts) 10 Lift installations (passengers) 12 Workshop equipment 5 Medical theatre equipment 6 X-ray equipment 5 5

6 Note: This page is perforated. You may remove it for easy reference. Section 1 Data You work in the tax department of a firm of Chartered Accountants. One of your clients, Pamela Russell, had traded for many years, owning a small fabric retail business. This business does not qualify as a small business corporation. She sold the business on 31 March 2007, as she was approaching retirement age. You are given the following information that relates to Pamela s business: Trading income: 1. Her adjusted trading profit for the year ended 28 February 2007 is R1,024, Her adjusted trading profit for the period ended 31 March 2007 is R302, She has an assessed loss from trading carried forward from the 2006 year of assessment of R25, The capital allowances computation showed the following tax values at 1 March 2006 (all bought new at the start of the previous tax year): R Existing plant and machinery 345,600 Pamela s car (80% private usage) 190,320 During the period 1 March 2006 to 28 February 2007, Pamela had the following capital transactions: Purchases: R April 2006 Machine 1 (new) 120,030 May 2006 Plant A (used) 80,000 December 2006 Machine 2 (used) 30,500 Disposals: November 2006 Machine 1 90,900 February 2007 Machine 2 36,000 When Pamela ceased trading, she disposed of the rest of the plant and machinery that remained in the pool for R569,400. She decided to keep the car, which had a market value of R120,000. All plant and machinery are used in a process of manufacture. Capital transactions: Pamela owned 25% of the shares in a company, which are treated as an investment for capital gains purposes. In June 1987, she bought the shares for R50,000. In January 2000, she received 3,000 bonus shares. Market value of the shares on 1 October 2001 was R120,000 (selected for valuation date value purposes) In January 2007, she sold all of these shares. The gross proceeds were R170,500. The selling agent charged her a commission of 5%. 6

7 Task 1.1 Calculate: (a) the total capital allowances and total recoupments for the year ended 28 February (b) the total capital allowance only for the period ended 31 March

8 Task 1.2 Calculate the taxable trading income for Pamela for the tax year

9 Task 1.3 Calculate the taxable capital gain on the disposal of the shares. 9

10 Task 1.4 Pamela needs to inform SARS that she has ceased trading. (a) How does she indicate in her tax return that she has ceased trading? (b) What are the relevant dates for submitting this tax return? (c) When is Pamela liable to make tax payments for the 2007 tax year? 10

11 Data You have received the following from Pamela. From: To: Sent: 18 June 2007 Subject: Advice Hello, I hope you remember me. You did all the work on my tax affairs after I sold my business. I am wanting a bit of advice about a hobby of mine. For years, I have been interested in photography, and I use quite a lot of equipment. Since retiring from the fabric business, I have so much more time, and now I am being asked by friends to take official photos at events such as weddings and christenings. So far, I have not charged them anything, but I feel that I need to start to cover my expenses. However, I am really concerned about the implications of charging them, as I think that SARS will treat this as though I am trading, but I believe that it is still just a hobby. Any advice or information that you can give me on this matter would be much appreciated. Pamela Task 1.5 Reply to Pamela s , explaining the criteria that SARS would use to determine whether or not Pamela is trading. From: AATStudent@boxmail.net To: PamelaRussel@hotbox.net Sent: 19 June 2007 Subject: Re: Advice 11

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15 Note: This page is perforated. You may remove it for easy reference. Section 2 Data You work in the tax department of a manufacturing company trading as Hoppings Ltd. The following information is available for the year ended 31 July A summary of the accounts show: R R Gross profit 1,690,450 Depreciation 145,060 Expenses 572,100 Directors salaries 345,030 Other salaries 590,990 1,653,180 Net profit 37,270 The expenses include: R Bad debts 1,950 Increase in a general provision for doubtful debts 2,400 Legal fees in relation to tax appeal 5,000 Speeding fines incurred by a director 1,200 Donations made to Public Benefit Organisations (with receipts) 5,500 Donations made to Public Benefit Organisations (no receipts) 6, The capital allowances have already been calculated at R152, During 2005, Hoppings Ltd constructed a new factory. The cost of the factory was: R Land 280,000 Legal fees in connection with the purchase of land 1,500 Legal fees in connection with building of factory 3,000 Cost of the building 1,175,000 Total 1,459,500 The factory was brought into use in October In November 2005, Hoppings Ltd sold a non-trading capital asset for R19,000. It had cost the company R22,000 in January Hoppings Ltd has no associated companies. 15

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17 Task 2.1 Calculate the gain arising from the disposal of the capital asset. Note that time apportioned base cost must be used to determine the valuation date value. State whether any exclusions (other than the annual exclusion) or loss limitations would apply. Task 2.2 Calculate the industrial (manufacturing) buildings allowance. 17

18 Task 2.3 Calculate the taxable income, before the donation deduction, for the year ended 31 July Task 2.4 Calculate the final taxable income for the year ended 31 July

19 Task 2.5 (a) (b) Calculate the total tax payable for the year ended 31 July 2006 assuming this company qualifies as a small business corporation. State the date of third voluntary provisional payment to avoid penalties and interest. Calculate the total tax payable for the year ended 31 July 2006 assuming this company is not a small business corporation. 19

20 Data You have received the following from the Managing Director: From: To: Sent: 18 June 2007 Subject: Gifts I was wondering if you could give me some advice. The Board of Directors want to give our best customers some gifts this Christmas. We were thinking of either a nice bottle of wine, or a posh diary, or something like that. However, before we decide what to give them, I would like to know which is the best alternative from a taxation point of view. Your help in this matter is much appreciated. Mark Proctor Task 2.6 Reply to the Managing Director s , clearly addressing his query. From: You@Hoppings.za To: MPX@Hoppings.za Sent: 19 June 2007 Subject: Re: Gifts 20

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24 Diploma pathway qualification codes Diploma (2003 standards) 100/5925/8 Unit number (BTC) M/103/6454 Association of Accounting Technicians (AAT) Clerkenwell Road, London EC1R 5AD, UK t: +44 (0) f: +44 (0) e: w: