FACULTY OF ACCOUNTING AND INFORMATICS
DEPARTMENT OF AUDITING AND TAXATION, AND
DEPARTMENT OF FINANCE AND INFORMATION MANAGEMENT
2023
TEST ONE – Value-Added Tax (VAT)
INSTRUCTIONAL PROGRAMME: ND: Accounting, ND Cost &
Management Accounting, ND Internal
Auditing, ND Taxation, ND FIS
INSTRUCTIONAL OFFERING: TAXATION 2 MODULE 2
SUBJECT CODES: TAXN221 / TAXB201 / TAXT221 /
TAXT202 TAXA221 / TXAN221 /
TXNB201
DATE: 31 AUGUST 2023
DURATION: 90 MINUTES
MARKS: 50
EXAMINER: MR MABHIDA M I
MODERATOR: DR CHAUKE K R
INSTRUCTIONS/REQUIREMENTS: -
1. Answer all questions.
2. Round off to nearest rand.
3. Arithmetic calculators are permitted.
Question 1 (30 Marks) 55 Minutes
Virgin Groom is a resident of the Republic. She is 33 years old. She is a divorcee, having
had four husbands. She carries on business as a “wedding consultant”. She is the sole
proprietor. She is a vendor registered for value-added tax on the invoice basis. She trades
from leased premises. Details of Virginia Groom’s receipts, accruals and expenditure for her
two months tax period ended 31 August 2023 are presented below. Unless stated otherwise,
all amounts are inclusive of value-added tax.
Receipts and accruals R
Consulting fees charged 257 600
Sales of wedding accessories 71 760
Rentals from the letting of her wedding equipment 23 920
Interest on her bank current account 4 140
Indemnity award (note 1 41 400
Newspaper award (note 2) 23 000
Expenditure and provisions
Bad debts (note 3) 10 580
Bank charges 1 380
Depreciation on wedding equipment (note 4) 6 000
Depreciation on a computer (note 5) 800
Depreciation on motor car (note 6) 3 160
Insurance premium on her wedding equipment 345
Insurance on her computer 299
Insurance premium on her motor car 1 610
Petrol 17 940
Printing and stationery 1 265
Purchase of new accessories from vendors (note 7) 50 600
Purchase of second-hand accessories from vendors (note 7) 7 475
Purchase of second-hand accessories from non-vendors (note 7) 6 670
Rentals for her business premises 6 900
Rentals for a coffee machine (located in her business premises for her
customer use) 1 035
Salaries 33 120
Notes
1. The indemnity payment of R41 400 was awarded to Virginia groom for the loss of
some wedding equipment. She had let it to a couple for their wedding. They had not
returned it and have since emigrated.
2. Virginia Groom was voted ‘Businesswomen of the Year’ by a local newspaper. She
was awarded prizes valued at R23 000 for this achievement.
3. The bad debts written off by Virginia Groom of R10 580 comprise the following:
R8 280 owed by a client. Her marriage had lasted only 10 days. Her husband
ran off with the bridesmaid. She is unemployed and is in financial difficulties.
R2 300 was lent by Virginia Groom to a part-time employee who had since left
town without repaying the loan.
4. Wedding equipment on which the equipment is being determined was purchased by
Virginia Groom from a vendor in a previous tax period for R207 000. The relevant
amount of input tax was deducted by her in this previous tax period.
5. The computer was purchased by Virginia Groom from a vendor on 1 July 2023 for
R16 560.
6. The motor car was purchased by Virginia Groom from a vendor on 1 July 2023 for
R379 500. It was not subject to the maintenance plan. She has the sole use of this
motor car. She maintains accurate records of her business travel and can prove that
her business travel is 25% of her total travel.
7. Virginia Grove purchases wedding accessories from both vendors and non-vendors.
The wedding accessories purchased from non-vendors are paid by her in cash. She
displays these wedding accessories at her business premises.
8. In July 2022 Virginia Groom bought accessories for R19 320 (R16 800 plus value-
added tax of R2 520) from a local supplier. She enjoyed an input tax deduction of
R2 520 in the tax period 1 July 2022 to 31 August 2022. She then encountered
problems with these accessories and paid the supplier only R14 490 (R12 600 plus
value-added tax of R1 890) on 31 August 2022. She refused to settle the balance of
this account until the problems were resolved. At 31 August 2023, the problem had
still not been resolved and R4 830 (R4 200 plus value-added tax of R630) was still
outstanding despite numerous letters of demand having been received by her from
her supplier.
You are required to:
Determine the net value-added tax due to, or from, the Commissioner for Virginia Groom’s
two months tax period ended 31 August 2023. Give a brief comment to support your
workings when necessary.
Question 2 (20 Marks) 35 Minutes
Mr Green Fingers commenced his private company named Green Logic (Pty) Ltd. Mr Green
is the sole shareholder of Green Logic (Pty) Ltd registered for VAT on payments basis. An
accountant Aphelele has requested your help in processing the following transactions
through the accounting records of Green Logic (Pty) Ltd. Aphelele has not recorded any
entries in the accounting records for the following transactions, as she is unsure of the VAT
implications. All transactions relate to the tax period 1 March 2023 to 30 April 2023.
Extract from the cashbook:
Cash receipts
Cash sales in the Republic 18 400 000
Sales in Lesotho (delivery was made outside the Republic) 8 900 000
Sales in Namibia (delivery was made outside the Republic) 5 620 000
Receipts from debtors – South Africa (Note 1) 2 300 000
– Lesotho (Note 1) 1 400 000
– Namibia (Note 1) 2 052 000
Cash payments
Bank charges 230 000
Interest on bank overdraft 230 000
Fuel 540 000
Entertainment costs 114 000
Stock purchased for cash 2 875 000
Payments to creditors – stock purchases (Note 1) 3 220 000
Rent paid 920 000
Water and electricity paid 345 000
Salaries 750 000
Notes
1.
Debtors, creditors, and stock
01 March 2023 30 April 2023
R R
Debtors - South Africa 4 560 000 7 410 000
Lesotho 3 420 000 3 990 000
Namibia 2 850 000 3 648 000
Creditors - purchase of stock 5 700 000 6 270 000
Stock on hand at cost (excluding VAT) 3 500 000 4 500 000
2.
On 1 March 2023, Green Logic (Pty) Ltd employed a sales consultant to visit existing and
potential clients. Green Logic (Pty) Ltd purchased a new double-cab light-delivery vehicle for
R576 000 including VAT. The sales consultant has the sole use of this double-cab light-delivery
vehicle but is required to pay for all its petrol and maintenance expenses. He may also use the
vehicle for private purposes.
You are required to:
Calculate the net value-added tax due to, or from, the Commissioner for Green Logic (Pty)
Ltd’s two months tax period ended 30 April 2023.
MEMORANDUM
QUESTION 1 (30 Marks)
Output tax
Consulting fees (R257 600 × 15 / 115) 33 600 ✓
Sales of wedding accessories (R71 760 × 15 / 115) 9 360 ✓
Rentals from wedding equipment (R23 920 × 15 / 115) 3 120 ✓
Interest on bank current account (an exempt supply being a ‘financial service’) – ✓
Indemnity award (R41 400 × 15 / 115) 5 400 ✓
Newspaper award (not a ‘supply’ of a ‘good’ or a ‘service’ by Virginia Groom) – ✓
Use of motor car by Virginia Groom (not a deemed supply) – ✓
Reversal of input tax deductions on amounts not paid within 12 months (section 22(3)) 630 ✓✓
Total output tax 52 110
Input tax
Bad debts
– Client (R8 280 × 15 / 115) 1 080 ✓
– Loan to employee (no output tax was raised on the loan therefore no input tax is deducted) – ✓
Bank charges (R1 380 × 15 / 115) 180 ✓
Depreciation (no value-added tax consequences) – ✓
Wedding equipment (purchased in a previous tax period) – ✓
Computer purchased on 1 July 2023 (R16 560 × 15 / 115) 2 160 ✓
Motor car purchased on 1 August 2023 (no input tax deduction since it is a ‘motor car’ as defined) – ✓
Insurance premiums
– Wedding equipment (R345 × 15 / 115) 45 ✓
– Computer (R299 × 15 / 115) 39 ✓
– Motor car (R1 610 × 15 / 115 × 25%) 53 ✓✓
Petrol (zero-rated supply R17 940 × 0 / 100) 0 ✓
Printing and stationery (R1 265 × 15 / 115) 165 ✓
Purchases
– New wedding accessories (R50 600 × 15 / 115) 6 600 ✓
– Second-hand wedding accessories purchased from registered vendors (R7 475 × 15 / 115) 975 ✓
– Second-hand wedding accessories purchased from non-registered vendors and paid for in cash
(‘notional’ input tax deduction of R6 670 × 15 / 115) 870 ✓
Salaries (not a taxable supply) – ✓
Rentals
– Rental of business premises (R6 900 × 15 / 115) 900 ✓
– Rental of coffee machine (supply of beverages is ‘entertainment’ therefore no input tax
–
deduction) ✓
Total input tax 13 067
Net amount of value-added tax due to the Commissioner (R52 110 – R13 067) P✓✓ 39 043
Question 2 (20 Marks)
Output tax
2 400 00
Cash sales (R18 400 000 × 15/115)
0 ✓
Receipts from debtors (R2 300 000 × 15/115) 300 000
✓
Exports – zero-rated nil ✓
Use of the double-cab light-delivery vehicle by the employee is a fringe benefit,
370
giving rise to a deemed supply
(R576 000 × 100 / 115✓ × 0,3%✓) – R85✓) × 15 / 115✓ × 2 months✓ = R370
2 700
370
Less: Input tax
Bank charges (R230 000 × 15/115) 30 000 ✓
Interest on bank overdraft – exempt supply, financial service nil
✓
Fuel – zero-rated supply (section 11(1)(h)) nil ✓
Entertainment – not deductible (exempt supply) (section 17(2)(a)) nil
✓
Stock purchases
Cash purchases (R2 875 000 × 15/115) 375 000 ✓
Payments to creditors (R3 220 000 × 15/115) 420 000 ✓
Rent paid (R920 000 × 15/115) 120 000 ✓
Water and electricity paid (R345 000 × 15/115) 45 000 ✓
Salaries (not a taxable supply) - ✓
Delivery vehicle (no input tax deduction since it is a ‘motor car’ as defined) - ✓
990 000 990 000
VAT payable to the Commissioner R2 700 370 – R990 000 = R1 710 370 P ✓✓
