PRACTICE QUESTION 1 for VAT 2021

Question 1 (30 marks)

AB Manufacturing Limited (“the company”) manufactures dining room tables and chairs. The
accountant of the company has requested you to help him in completing the VAT return that is
due to the South African Revenue Service (“SARS”). The following information is supplied to you
for the two month tax period ended 30 June 2021.

1. The company is registered on the invoice basis for VAT purposes under category B.
2. All amounts include VAT

Income and expenses for the two months ended 30 June 2021 are detailed below as follows:

Income and expenses for the two months ended 30 June 2021 Note Amount - R
Income
Local sales 230,000
Export sales 1 115,000
Sale of scrap off-cut timber 1,150
Interest income 2,000
Indemnity income 2 58,650
Proceeds on sale of an old manufacturing machine 50,000

Expenditure
Purchases of timber 23,000
Monthly rental paid for the lease of the factory building for May and 4,600
June 2021
Depreciation 3 50,000
Bad debts 4 13,500
Purchase of second hand machine 5 100,000
Insurance premiums 6 3,450
Bank charges 7 115
Interest paid on bank overdraft 3,000
Staff refreshments 8 575
Salary and wages 30,000
Flight costs paid to South African Airways (“SAA”) 9 10,000

1. The company sold goods to customers in foreign countries amounting to R115,000. A

customer from Botswana picked up the goods with his truck and this amounted to
R57,500. The other export sales of R57,500 was transported by the company’s own truck
to a customer in Namibia.
2. There was a robbery at the company’s premises on 15 May 2021 and the company bakkie
and microwave was stolen. The insurance company paid R57,500 for the bakkie and
R1,150 for the microwave.
3. Depreciation is charged for the following assets owned by the company:

3.1 A manufacturing machine was purchased two years ago for R200,000.
3.2 A double cab bakkie was purchased on 1 May 2021 for R300,000. The financial director
has the sole use of the double cab and he bears the full cost of maintaining the vehicle.
 4. Bad debts written off comprise the following:

4.1 R8,000 owing by local customer (debtor) who became insolvent.

4.2 R5,500 owing by an export sale debtor situated in Zimbabwe.
5. The company bought a second hand manufacturing machine on 30 June 2021 from a non-
vendor. The company paid R50,000 on 30 June 2021 and the balance of R50,000 will be
paid on 1 December 2021.
6. The insurance premium of R3,450 was incurred for the following:

6.1 Manufacturing equipment and tools – R2,300

6.2 Double cab bakkie for financial director – R1,150
7. The bank charges of R115 was incurred for the following:

7.1 Internet banking fee – R57.50

7.2 Cheque book cost – R57.50
8. The staff refreshments cost of R575 was incurred for tea, coffee and sugar purchased for
the factory and office staff.
9. The company incurred the following costs relating to director’s business travel:

9.1 Flight to Cape Town - R2,300

9.2 Flight from Durban to Dubai - R7,700
10. The company imported raw materials from Botswana. The customs duty value was
R100,000 and import surcharge of R10,000 was incurred. The company received the
relevant customs documentation and receipt from SARS on 31 May 2021.

Required

You are required to calculate the VAT payable by/refundable to AB Manufacturing Limited for the
two month VAT period ended 30 June 2021. Round all amounts to the nearest rand. Give brief
reasons where the amount is Nil.