Answered: You are the financial manager of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are the financial manager of Emperors (Pty) Ltd, a property company earning its income from both commercial rentals (office blocks and factories) and residential rentals (town houses). The company has a December year-end. Your responsibilities include the completion of its two-monthly VAT return. As Emperors (Pty) Ltd makes both taxable and exempt supplies for VAT purposes, it has applied the turnover-based method of apportionment to arrive at an acceptable input tax ratio of 98%. The accounting system operated by Emperors (Pty) Ltd has provided the following analysis of its income and expenditure for its two-month tax period ending 31 January. All amounts are inclusive of VAT, where applicable. Income Commercial rentals 849 300 Residential rentals 159 600 Interest levied on overdue rentals 7 410 Insurance settlement (note 1) 136 800 Expenditure Purchase of new factory building, to be let (paid in cash) 769 000 Purchase of two residential flats, to be let (paid in cash) 468 500 Bank charges 1 254 Audit fees 14 250 Salaries and wages 66 120 Bakkie (note 2) 150 600 Depreciation (note 2) 5 105 Maintenance (note 3) 16 416 Insurance premiums (note 4) 15 048 Interest incurred on mortgage bonds 85 500 Office equipment rentals (note 5) 5 244 Employees’ expenses (note 6) 741 Bad debts (note 7) 16 188 Travelling expenses (note 8) 2 508 Note 1. The insurance settlement of R136 800 was for a single-cab light-delivery vehicle (‘bakkie’) that was stolen from Emperors (Pty) Ltd’s premises in the previous month. This bakkie was used for both the residential and commercial properties. At the time it was stolen, the book value of this single-cab bakkie was R160 200. In January, on receipt of the insurance settlement, a new single-cab bakkie was purchased by Emperors (Pty) Ltd (see note 2). Note 2. A new single-cab bakkie was purchased in January at a cost of R150 600 (including VAT of R18 495) to replace the single-cab bakkie that was stolen (see note 1 above). Depreciation was provided for on the bakkie purchased by Emperors (Pty) Ltd. This bakkie is used to transport its maintenance teams between its various buildings. Note 3. Maintenance costs of R16 416 include paint, paint brushes and other hardware items pur-chased to effect repair workto all its buildings. Note 4. Insurance premiums, in terms of an all-comprehensive business insurance policy, to the amount of R15 048 were incurred in respect of all the assets of the company. Note 5. Office equipment rentals of R5 244 were incurred on the following assets: Facsimile machine 2 736 Printer 1 482 Coffee machine 1 026 Total 5 244 Note 6. Employees’ expenses of R741 were incurred in respect of tea and coffee provided to employees while they were working in their offices. Note 7. Bad debts of R16 188 are made up of debts written off for commercial-rental debtors of R9 804 and for residential rental debtors of R6 384. Note 8 . Relates to hotel accommodation and meals paid for. You are required to: Calculate the net amount of VAT refundable by or payable to SARS in respect of Emperors (Pty) Ltd’s two-month tax period ended 31 January, assuming all the necessary documentation has been obtained by the company. Should no VAT be raised or claimed, provide brief reasons. NB: Round up all figures to the nearest rand.

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