Local Fashion (Pty) Ltd (LF) designs and produces fashion garments using local materials for local and international distribution. The company has a financial year ending on 31 December each year and is a registered value added tax (VAT) vendor. LF entered into the following transactions for the 2017 year of assessment. All transactions (unless otherwise stated) took place between VAT registered vendors and the company is in possession of all the necessary documentation. All amounts are stated inclusive of VAT where applicable.
1. Sales of local fashion garments totalling R1,300,000 to customers in South Africa and R250,000 to foreign customers outside South Africa.
2. Sale of stock used previously as window display items for R25,000. The original market value of the stock was R30,000 at the date of manufacture.
3. Interest earned on cash deposits of R2,000.
4. Dividends received of R2,000 from a local company in which LF holds an investment interest.
5. Legal costs of R30,000 defending a claim against LF’s profits by a local designer who claimed that the designs used by LF had been copied.
6. Courier fees for delivery of garments totalling R15,000 to customers in South Africa and R29,000 to customers outside South Africa.
7. Wages payable to the local dressmakers employed by LF of R350,000.
8. Bad debts written off of R22,000.
9. Evening function for the local designers costing R20,000 after a runway show hosted by LF costing R100,000. The runway show generates new garment orders.
10. Bank charges on company bank accounts of R3,000.
(a) Calculate the input value added tax (VAT) and output VAT arising from each of the transactions (1) to (10).
Note: You should format your answers in two columns labelled ‘Input VAT’ and ‘Output VAT’ and indicate by the use of zero (0) any item which does not result in either input VAT or output VAT. (10 marks)
Plumb Co Ltd (PC) is a plumbing supply and service company owned by four shareholders who are also directors. The company has a 31 March year end and is a registered value added tax (VAT) vendor. All amounts below exclude VAT where applicable.
The following information is relevant for the year of assessment ended 31 March 2017:
(i) The four shareholders and directors of PC are all trained plumbers and each manages a team of two people. One director’s team consists of his brother and another unconnected full-time employee. The other three teams comprise one full-time and one part-time employee (in addition to the director managing the team).
(ii) The turnover from plumbing services is R1,500,000 and from the sale of plumbing equipment is R13,000,000.
(iii) The directors all have shareholdings in other companies listed on the Johannesburg Stock Exchange.
(iv) PC holds 25% of the shares in Tap Ltd and earned dividends of R40,000.
(v) Interest received on the company bank account amounted to R25,000.
(vi) Stock of plumbing goods on hand at 1 April 2016 was R560,000, stock purchased during the year was R7,000,000 and stock on hand at 31 March 2017 was R600,000.
(vii) Wages amounted to R5,000,000.
(viii) Miscellaneous deductible costs amounted to R700,000.
(a) Calculate the tax payable by Plumb Co Ltd for the year of assessment ended 31 March 2017, assuming the company is classified as a small business corporation. (10 marks)
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