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The manufacturing is carried on from premises situated in Prospecton, Durban, and there are two distribution warehouses, one in Johannesburg and one in Cape Town. The factory is situated on land purchased from a property developer in 2001 at a cost of R5 700 000. A special purpose factory and warehouse used mainly for carrying on a process of manufacture were constructed on the land and brought into use in July 2003 at a cost of RS2 440 000. Further improvements to the factory building were completed in November 2015 at a cost of R10 260 000.

The factory building was extended to accommodate a new production line comprising of new and unused plant and oquipment which was brought into usc on 1 May 2016 and is used directly in the ir.anufacture of plastic moulded accessories. The equipment cost R10830 000. The main machine is T:ounted on u reinforced concrete hase that was specially constructed at a cost of Ri 710 000, which formod part of the improvement costs for the factory. The original manufacturing plant and equipment, which was installed in 1998 and was still in use at 30 June 2016, is fully depreciated. Carandvan owns the warehouse in Cape Town, which was brought into use in June 2013. The land was purchased from a property developer in 2012 for R3 420 000 and the construction cost was R13 680 000. The Johannesburg warehouse is occupied in terms of a lease for 9 years and 11 months with effect from 1 October 2015. In addition to the monthly rentals, Carandvan agreed to make a lump sur payment of R570 000, payable on 1 October 2015 to the owner. On 1 July 2015, a delivery vehicle, which had been purchased on 1 April 2013 at a cost of Ri 368 000, was burnt in a riot outside the factory premises. The Commissioner had approved the useful life of the vehicle for tax purposcs to be four years. The insurance claim was approved and an amount of R1 710 000 was paid to the company in September 2015. The insurance proceeds were utilised to finance the acquisition of a new delivery vehicle, which was brought into use on 1 January 2016, at a cost of R1 938 000, As at 30 June 2016 the following prepayments had been made: • R627 000 (excluding VAT) puid in February 2016 to the Cape Town Municipality in respect of rates for the year ending 31 March 2017; R102 600 paid in January 2016 to the Motor Accessory Manufacturers Association as annual membership foxs for the year 1 March 2016 to 28 February 2017; and • R95 760 annual retainer paid in March 2016 to Acme Public Relations (Pty) Ltd for the period 1 April 2016 to 31 March 2017 In December 2014, Carandvan had entered into an agreement with a major customer to design and supply 100 000 stccring wheel covers for a new production range, which was to be introduced in 2017. The contract price was R3 420 1800. The terms of the contract were that 20% of the purchase price would be duc and payable on signature of the agrement, a further 40% would be due and payable on approval of the design and that the balance would be payable on completion of the delivery. The estimated profit from the contract was R600 000 (excluding VAT). At 30 June 2015, the company had incurred R420 000 (excluiny VAT) in designing the cover. The initial amount of 20% of the contract price was paid in December 2014 on signature of the agreement. Advanced Taxation Final Examination: 2016 Page 5 The design was approved on 31 July 2015 and the payment duc at that date was received and included in taxable incone 50 000 covers had been delivered by 30 June 2016. The costs incurred on the project, which had been deducted in determining the taxable income of Carandvan for the year cndcd 3.) June 2016, were R1 000 000 (excluding VAT). On 10 Jun 2016, Carandvan shipped a large cxport order to a manufacturer in Malaysia. The invoiced amount was US$100 000 which was inciuded in taxable income at the rate of exchange on that dats. The payment terms were that payment must he made within 90 days from date of shipment. Management took forward exchange cover to 8 August 2016 in order to hodge the currency risk. The folowing rates of exchange applied: Rand’US Dollar exchange rate 10 June 2016 – $1 – R14.70 Rand US Dollar exchange rate 30 June 2016 – $1 = R14.85 Forward exchange rate Rand/US Dollar due 8 August 2016 at 10 June 2016 – $1 = R14.88 Market related forward exchange rate Rand’US Dollar due 8 August 2016 at 30 June 2016 – 51 – R14.99. In December 2015 Carandvan donated stock to the Mayor’s Christmas Appeal Fund, a registered public benefit crganisation for purposes of section 18A of the Income tax Act. The cost of the stock that had been donated was R150 000 (excluding VAT). The wholesale selling price from the company to its distributors was R228 000. The retail sales value was R271 000. Three of the employees arc cmployed subject to lcamership agreements which are registered with the industry SETA. The details are as follows: Name Date commenced J Mason I June 2013 J Vassay 1 September 2013 R Kennedy (disabled person) 1 January 2016 Date completed 31 May 2016 29 February 2016 In progress A loan haid heen entered into with Capital Finance (Pty) Ltd to finance the factory extension and acquisition of the new plant and machinery. The loan principal of R18 000 000 was advanced on 1 October 2015. The loan is repayable in 10 equal instalments of R2 300 000 on 31 March and 30 September of each year. The yield to maturity is 4.7245% for each accrual period. Carandvan owns a 40% interest in a manufacturing company in Brazil, which manufactures products under liccnoc that are sold using the Carandvan trade mark. A royalty is payable by the licensee. Royalties actually received during the year of assessment, after deduction of withholding tax of 15%, amounted to R255 000. The amount actually received had been included in the taxable income figure of R16 500 000 below. A dividend of R180 000, net of 10% withholding tax was actually received from the Brazilian investment op 30 June 2016. This amount has not been included in taxable income figure of R16 500 000 below.

Except where indicated, no adjustment has been made in the determination of taxable income account of the events listed above.

The taxablc income of Carandvan for the year cnded 30 June 2016 before taking account of the information listed above is R16 500 000).