2023 TAXATION III

FORMATIVE ASSESSMENT 1
SCENARIO
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ACCN 3013A & ACCN 3013

ACCN 3021A & ACCN 3021
ACCN 3022A & ACCN 3022
_____________________________________________________________________________________________________________________________________________________________

SCHOOL OF ACCOUNTANCY
COMMERENCE, LAW AND MANAGEMENT FACULTY

School of Accountancy, University of the Witwatersrand Page 1 of 5

 2023 Taxation III Formative Assessment 1

INSTRUCTIONS (PLEASE READ CAREFULLY):

1. Read and analyse the scenario on the next page.
2. Attempt the multiple-choice question (MCQ) quiz on Ulwazi. Take note of the following:
a. The MCQ assignment on Ulwazi is timed and students only have
90 minutes/1.5 hours to complete the quiz on Ulwazi. This excludes the time
to read the scenario.
b. You need to answer 10 MCQ questions each worth 10 points (100 points
total).
c. The MCQ assignment is a sequential quiz. Once you have answered a
question you are not allowed to go back to the previous question to either view
it or change your answer.
d. Each student is allowed only 1 attempt. Only submit the assignment when you
have reviewed your responses and are absolutely sure that you are ready to
submit. No requests by students to have their assignment re-opened or
given another attempt will be entertained as the academic integrity of the
assignment depends on each student viewing the assignment only once.
e. The MCQ assignment is available on Ulwazi from Monday 27 March 2023 at
07h00 to Friday 31 March 2023 at 19h00.
i. The MCQ is open and available on Ulwazi for 108 hours/4.5 days. This
is sufficient time to accommodate any students who are observing
religious holidays/festivities, students who have other commitments,
and students working part-time or using night-time data can access the
assessment with ease.
ii. A period of 1 hour will be allowed after the deadline (19h00 on 31 March
2023) to allow for any late assignments i.e., Ulwazi will be accepting
late assignments up until 20h00 on Friday 31 March 2023. Late
assignments, however, will be subject to a late penalty of:
Assignments submitted during: Percentage Penalty
19h00m01s - 19h10m00s 0%
19h10m01s - 19h20m00s -5%
19h20m01s - 19h30m00s -10%
19h30m01s - 19h40m00s -20%
19h40m01s - 19h50m00s -40%
19h50m01s - 20h00m00s -80%
20h00m01s - -100%

NB!! Reminder: Students should plan around their local

loadshedding schedules and/or personal commitments. The
assessment is online and as such unforeseen technical difficulties
may be experienced. Students are encouraged to plan accordingly
and attempt their assignment as early as possible so that any
unforeseen technical difficulties are resolved before the deadline
of 19h00 on 31 March 2023.
STRICTLY, no late assignments after 20h00 on Friday 31 March
2023 will be accepted.

School of Accountancy, University of the Witwatersrand Page 2 of 5

 2023 Taxation III Formative Assessment 1

MAIN SCENARIO: 100 MARKS

Recommended reading time: 18 minutes.
NOTE: Below is the main scenario that applies to all multiple-choice questions in the
quiz. In the quiz on ulwazi, you will be presented with additional information alongside
each question. This additional information is relevant only to that particular question
and should not be used to answer any other questions in the quiz. Please read each
question and its corresponding information carefully before selecting your answer.

This scenario consists of two UNRELATED parts.

Part A______________________________________________________________
Ice Stone (Pty) Ltd (“Ice Stone”), a footwear manufacturing company, is situated in Wynberg,
Gauteng. Ice Stone has gained immense popularity since its inception in 2014. While Ice
Stone mainly operates locally, it also exports a variety of shoes, including sneakers, heels,
boots, sandals, and flip-flops, to retail outlets based in the United Kingdom (UK) and Jamaica.

Ice Stone is a South African resident for tax purposes. Ice Stone is not a small business
corporation (SBC) as defined in section 12E(4)(a) of the Income Tax Act. Ice Stone has a
financial year that ends on the last day of March of each year.

Ice Stone is a registered category A Value-Added Tax (VAT) vendor registered on the invoice
basis and makes 95.5% taxable supplies as determined in terms of the turnover-based method
in Binding General Ruling No. 16. Ice Stone mostly relies on cash sales for its revenue. Only
in rare situations does Ice Stone offer credit to its clients at an interest rate of 0.2%.

Ice Stone makes all its purchases of raw materials and other expenditures from VAT vendors,
unless stated otherwise. All amounts include VAT, where relevant unless stated otherwise.
Ice Stone has obtained all relevant and valid documentation as required in terms of the VAT
Act has been obtained.

The tax manager at Ice Stone is unable to cope with the increased workload and requested
your assistance with the following transactions.

Note 1

Ice Stone entered into an agreement with a popular local social media influencer, ZaraK, on
1 May 2022, as part of its new marketing campaign. The agreement specified that Ice Stone
would provide ZaraK with 10 pairs of shoes (platforms, loafers, strapped sandals and skating
shoes) in exchange for her posting two videos on her TikTok account.

It was agreed that the TikTok videos would clearly display and promote Ice Stone’s shoes.
The 10 pairs of shoes to be given to ZaraK in terms of the agreement are typically sold by Ice
Stone in an arm’s length transaction for a combined value of R7 000 (excluding VAT). The 10
pairs of shoes cost Ice Stone R4 000 (excluding VAT) to manufacture.

School of Accountancy, University of the Witwatersrand Page 3 of 5

 2023 Taxation III Formative Assessment 1

Note 2

Ice Stone recently witnessed a substantial surge in its sales, attributed to the effectiveness of
its social media advertising campaign (refer to Note 1 above). On 30 March 2023, Ice Stone
received a special order from SZ Ltd (“SZ”), a customer situated in the Republic, for a
considerable quantity of shoes. SZ is not a connected person in relation to Ice Stone.

In view of the specialized SZ logo that was to be stitched into the shoes, Ice Stone deemed it
necessary to require SZ to pay a deposit of R287 500 for the order, prior to initiating the
manufacturing process. The deposit was subject to refund, solely in the event that SZ cancels
the order before the shoes' production commences.

Note 3

On 1 February 2023, Ice Stone purchased a new laptop (personal computer) for its financial
accountant from Credibly Connected Ltd. The invoice for the purchase was received on
1 February 2023 and the payment was made on the same day.

The laptop cost R12 075 and the financial accountant of Ice Stone will depreciate the laptop
over a period of 4 years for the purposes of preparing the financial statements of Ice Stone.
The laptop is used by the financial accountant who prepares the financial statements for the
business as a whole (including the division of Ice Stone that is responsible for providing credit
and charging interest to customers).

Note 4

Ice Stone's customer, FireStyle Ltd, is a Jamaican resident company that was declared
bankrupt on 1 March 2023. Prior to its bankruptcy, Firestyle Ltd had purchased ankle boots,
ballet flats, and athletic shoes from Ice Stone on 12 December 2022, amounting to a total of
R115 000 owed to Ice Stone.

Ice Stone had delivered the shoes to Firestyle Ltd’s business address in Jamaica. All relevant
documentation as required by the VAT Act was obtained by Ice Stone within the required time
frame prescribed by the VAT Act.

Note 5

On 1 January 2023, Ice Stone entered into an insurance contract with LoopHoles Ltd to obtain
insurance cover over its new manufacturing building and manufacturing machine located
inside the building.

***END OF INFORMATION FOR PART A***

School of Accountancy, University of the Witwatersrand Page 4 of 5

 2023 Taxation III Formative Assessment 1

Part B______________________________________________________________
Ella O’Frell, 37-years-old, is a South African resident for tax purposes. Ella established a
business, Mode Magazine (“MM”), on 1 May 2022 which she runs as a sole proprietor. MM
prints fashion magazines and sells them to the public. MM operates from a leased building in
Morningside. Ella does not meet the requirements for voluntary registration as a Value-Added
Tax (VAT) vendor. All amounts exclude VAT, unless the context indicates otherwise.

Ella asked for your assistance as a tax practitioner with the below transactions relating to Ella
and MM which occurred during the year of assessment ending 28 February 2023:

Note 1

On 23 May 2022, Ella sold her house in Parktown (Johannesburg) for R3 500 000. Ella
purchased the house on 11 April 2013 for a cost of R1 200 000 and has lived in the house
ever since that date.

Note 2

On 6 August 2022, MM was sued for the defamation of a local celebrity, BlackTea, in the July
issue of its magazine.

Note 3

On 10 September 2022, Ella sold her blue Volkswagen Polo GTI for R120 000.

Note 4

Ella acquired a 5% shareholding in Ray Ltd on 6 January 2020 for R50 000. Ray Ltd is not
listed on any stock exchange. Ella used the funds from a loan obtained from NettleBank to
fund the purchase of the shares.

***END OF INFORMATION FOR PART B***

***END OF SCENARIO***

Refer to the Formative Assessment Quiz in ulwazi for the required and additional
information on each note.

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