QUESTION 2 [30 marks]
Marvel (Pty) Ltd (Marvel) is a company that prints maps and atlases of the world. The
financial accountant has recently resigned and the financial manager has requested
that you assist in the preparation of some sections of the financial statements for the
year ended 30 September 2024.
You have been provided with the following information:
1.Information specific to the income earned and expenses incurred during the 2024
financial year:
a. Profit before tax was correctly calculated as R4 285 500.
b.A ctual gross profit earned during the 2024 financial year amounted to R12 973 500.
This was R526 500 less than expected due to inventory stolen during the year. Marvel
expects to earn a consistent gross profit percentage on sales of 50%.
c. The only other income earned during the year was dividend income of R1 417 500.
d. Distribution, administration and operating expenses were split in the ratio 20%, 35%
and 45% respectively.
2. Revaluation of plant during the year
a. On 30 September 2024 plant with a carrying amount of R2 250 000 was revalued to
its fair value of R3 000 000. This will be realized through use over the plant’s remaining
useful life of 5 years.
b. This plant originally cost R3 600 000 when purchased on 1 October 2021.
3. The net deferred tax liability as at 30 September 2023 amounted to R115 500 and
it was made up as follows:
a.Property, plant and equipment R98 700 (Credit)
b.Provision for doubtful debts R33 600 (Debit)
c. Prepaid rent R50 400 (Credit)
4. The following information is relevant in completing the tax expense calculation
for the 2024 financial year:
a. The correct deferred tax closing balance as at 30 September 2024 was a credit
balance of R434 700.
b. Donations amounting to R450 000 were made and SARS considered these as
non-deductible expenses.
c. Depreciation on plant for the 2024 financial year was R450 000 and the
corresponding wear and tear allowance was R900 000.
d. The provision for doubtful debts balance at 30 September 2023 amounted to
R150 000 and at 30 September 2024 it amounted to R135 000. SARS grants 20% of
these provisions as a tax deduction.
e. The prepaid rent balance at 30 September 2023 was R180 000 and at 30
September 2024 it amounted to R108 000.
f. The company tax rate remained constant at 28% for all periods under review.
You are required to:
Part A
Prepare the Statement of Comprehensive Income of Marvel (Pty) Ltd for the year ending
30 September 2024 in accordance with IAS1.
(Hint: use the function method) (24 marks)
Comparative figures are not required.
Part B
Explain under which circumstances and to what extent will SARS allow the R450 000
donations made as a tax-deductible expense (4 marks)
Part C
Provide the reasons as to why Marvel must be a VAT Vendor (2 marks)
Part A: Statement of Comprehensive Income for Marvel (Pty) Ltd for the year ending 30 September 2024
| | Amount (R) |
|---------------------------|----------------|
| Revenue | 14,391,000 |
| Cost of Sales | (6,485,500) |
| Gross Profit | 7,905,500 |
| Other Income | 1,417,500 |
| Distribution Expenses | (2,878,200) |
| Administration Expenses | (5,159,250) |
| Operating Expenses | (6,034,500) |
| Profit Before Tax | 4,285,500 |
| Tax Expense | (1,063,644) |
| Profit for the year | 3,221,856 |
Part B: SARS will allow the R450,000 donations made as a tax-deductible expense if they are made to approved Public Benefit Organizations (PBOs) as defined in the Income Tax Act. The extent to which the donations will be tax-deductible depends on the type of PBO and the specific rules and limits set out in the tax legislation.
Part C: Marvel must be a VAT Vendor because their taxable turnover exceeds the mandatory threshold set by SARS for VAT registration. As a VAT Vendor, Marvel is required to charge VAT on their sales and can also claim input VAT on their purchases, which helps to streamline the VAT system and prevent tax evasion.