80.2K

Verified Solution

Link Copied!

McBold (Pty) Ltd ("McBold") is a South African company and manufactures high quality vitamins and nutritional supplements. The company's year of assessment ends on 31 March 2020 . It is not a small business corporation as defined in the Income Tax Act. The manufacturing of vitamins meets the requirements of a manufacturing process. The company's taxable income before taking into account the tax consequences of each of the following transactions is R16 345000 . The following information is provided to you for the company's current year of assessment: 1. Capital allowances on assets Buildings - McBold owns a factory building where the manufacturing process occurs. It was purchased new on 1 June 2012 for R2 400000 . - The company has rented a three-storey warehouse building in Pretoria from 1 July 2012 up to 30 June 2019 and paid rent of R65 000 per month. The property owner constructed a new portion to the building and on 1 July 2019 , McBold purchased the entire building and took occupation of the new section. The cost of the "old" and "new" part of the building was R3 000000 and R1400000 respectively. Machinery - Machine BV8 was purchased second hand on 1 December 2017 for R180 000 and is still in use. Major repairs and maintenance work of KK17 000 was incurred on 20 January 2020. - Machine BV10 was purchased new for R70 000 and brought into use on 1 May 2018. On 21 March 2020, the machine caught alight due to a faulty switch and was completely dama ged by fire. McBold received an insurance pay-out of R55 000 on 27 March 2020 . Delivery vehicle - A new delivery vehicle was purchased for R380 000 and brought into use on 1 November 2019 Printer - A new printer was purchased for R4 999 and brought into use on 1 February 2020. Research and development expenditure McBold conducted research during the year that relates to the development of a new range of supplements. All costs incurred meet the qualifying criteria for research and development costs in terms of section 11D of the Income Tax Act. The Department of Science and Technology received the necessary application by McBold on 3 May 2019 and the Minister of the Departmentof Science and Technology approved it on 14 June 2019. The costs were as follows: - Operating costs incurred of R88 000 on 5 April 2019 and R780 000 on 30 November 2019, - New and unused machinery purchased on 1 June 2019 costing R1 600000. 3. Restraint of trade The head scientist (an employee of McBold) was paid R1 500000 to restrain her from working a competitor for a fouryear period after she resigned on 1 February 2020. This payment will included in the income of the ex-employee for the 2020 tax return. 4. Inventory Raw materials of R5 230000 was purchased during the year. The closing stock as at 31 Mar 2019 was accounted for at R3 890000 . The stock take figures as at 31 March 2020 indicatec cost price of R2 300000 , which had a market value of R3 400000 . 5. Intellectual property McBold purchased a design for R300 000 on 1 June 2019 and incurred costs relating to the res ration of a patent of R120000 on 8 July 2019. Other information: The write-off period of assets according to the Binding General Ruling no. 7 is as follows: Delivery vehicles: 4 years Printer: 3 years REQUIRED: Calculate the income tax liability of McBold (Pty) Ltd for the year of assessment ending 31 March 2020. Start your answer with the taxable income of R16 345000

Answer & Explanation Solved by verified expert

See Answer