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Client: Beach Vibes (same client and information as in Task 2) has requested you to inform them if they could possibly qualify as a small business corporation and to calculate the companys tax liability for the 2023 year of assessment.

The client provided you with the following information to calculate the tax liability for the 2023 year of assessment:

	Notes	R
Income
Sales (includes sales to African countries of R94 500)		4 500 000
Expenses
Bad debts	1	18 750
Design costs	2	85 000
Donations	3	15 000
Doubtful debt provision	4	50 000
Insurance	5	500 000
Inventory - purchases	6	1 800 000
Salaries	7	850 000
Tax deductible expenses (includes the R30 000 advertising expense as per task 2 assume this amount is deductible)		48 000

Notes:

Bad debts

The bad debts all relate to irrecoverable debts written off during the year. Included in the amount is a R7 000 loan made to an employee of the company. This employee absconded (disappeared).

Design costs

A special umbrella design was acquired with the intention of starting to manufacture umbrellas locally. The design was acquired on 1 October 2022 for R85 000.

Donations

Beach Vibes donated R15 000 to a registered public benefit organisation on 2 December 2022. A valid section 18A receipt was received on the same day.

Doubtful debts provision

A provision for doubtful debts of R50 000 was raised by the financial accountant. All the doubtful debts provided for are between 70 to 80 days old. (IFRS is not being applied by the company).

Insurance

The business insurance premiums amounting to R20 000 per month was paid for the period 1 February 2022 to 31 August 2022. On 1 September 2022, the company decided to upgrade its business insurance coverage and the premiums increased to R30 000 per month. Beach Vibes decided to pay all the premiums for the next 12 months (R360 000) upfront on 1 September 2022.

Inventory

Umbrellas were purchased during the year for R1 800 000. After the stock take at year end, the following information is provided:

Umbrellas on hand as at 31 January 2023	Cost	Market value
960	R240 000	R432 000

Salaries

The salaries of R850 000 comprises of basic salaries of R600 000 and an amount of R250 000 for contributions made by Beach Vibes to a medical aid fund for the benefit of its employees.

REQUIRED:		MARKS
(a)	Explain briefly to Beach Vibes (Pty) Ltd on what basis the company do not qualify as a small business corporation. (Hint: Mention the specific requirement and explain why not.)	2
(b)	Calculate the tax liability of Beach Vibes (Pty) Ltd for the 31 January 2023 year of assessment on the assumption that the company is not a small business corporation (as defined). Provide reasons for all amounts that are not taxable and/or not deductible. Support your answer regarding the insurance premiums paid with calculations and reasons.	19

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