Question

The statement of profit or loss for Blue Cross (Pty) Ltd for the financial year ended 28 February 2019 is as follows:

R

Sales (note 1) 2000 000

Cost of sales (800 000)

Gross profit 1200 000

Salaries (450 000)

Depreciation (note 3) (100 000)

Repairs (15 000)

Profit from the sale of machinery (note 4) 30 000

Local dividends received 35 000

Interest received 28 000

Profit before tax 728 000

Note 1

Blue Cross (Pty) Ltd received a payment in advance of R40 000 from a customer. At year-end the goods still had to be delivered to the customer. This amount has not yet been recognised as revenue for accounting purposes.

Note 2

Blue Cross (Pty) Ltd entered into learnership agreements that qualify for allowances in terms of s 12H. The allowance amounts to R60 000.

Note 3

The equipment qualified for an accelerated allowance of R150 000 in terms of s 12C during the 2019 year of assessment.

Note 4

The machinery was sold for R320 000 on 30 August 2018. The recoupment of allowance for tax purposes amounted to R20 000. A capital gain of R50 000 arose on the disposal.

Statutory tax rate is 28%

Calculate the normal taxable payable by Blue Cross (Pty) Ltd for year of assessment ended on 28 February 2019.

Answer 1

Blue Cross (Pty) Ltd total tax liability at the end of 28th Feb.2019 is R175840. We will see calculation used to arrive tax liability. Please refer below details.

First we need to prepair profit and loss account statement as per given details for Blue Cross (Pty) Ltd on 28th Feb.2019.

Profit and loss statement as under -

Blue Cross Pty Ltd
PROFIT & LOSS A/C
FOR THE YEAR ENDING 28th Feb. 2019
Particulars	Amount Rs.		Particulars	Amount Rs.
To Purchase Cost of Goods Sales	800,000		By Sales	2,000,000
To Gross Profit c/f	1,200,000
	2,000,000			2,000,000
			By Gross Profit b/d	1,200,000
To Salaries and wages	450,000		By Local Dividend Received				35,000
To Repairs & Maintenance	15,000		By Interest Received							28,000
To Depreciation	100,000		By profit in Sale of Machinery			30,000
	565,000
Net Profit	728,000
Total	1,293,000		Total	1,293,000

Considering above profit and loss account statment we need to calculate tax payble for Blue cross Pty LTD.

Tax payable of Blue Cross Pty Ltd
	Net Profit before tax (A)	728,000.00	As per Profit and loss statement
Less	Advance receipt of undelivered goods	40,000.00	As per accounting rules we can consider all losses but not gains. Hence this values has been received in advance but goods will deliver in next financial year. Hence this income not considered while calculating tax.
	Net Profit after deduction (B)	688,000.00
Less	Learnership agreements allowances 12H	60,000.00	As there is no time frame given we assume it is for whole single financial year and deduct 100% as per rules.
	Net profit after allowance deduction ( C)	628,000.00
Less	Accelerated allowance - 12C	50,000.00	Accelerated allowance values is 150000 and we already claimed depreciation of 100000 hence difference of these both values will be deduct while calculating Taxable profit.
	Net profit after Accelerated allowance deduction ( D )	578,000.00
Add	Capital Gain on Machinery Sales	50,000.00	As we have already claimed depreciation in previous years hence this capital gain should be add in net profit.
	Total Net profit for Tax calculation (E)	628,000.00
	Tax Rate is 28%	175,840.00	28% of point E