LOILIGEN A CRESCO UNIVERSITY OF ZULULAND University of Zululand, Private Bag X1001, KwaDlangezwa, 3886 W: www.unizulu.ac.za FACULTY OF COMMERCE, ADMINISTRATION AND LAW DEPARTMENT OF ACCOUNTING AND AUDITING AUDITING AND TAXATION PROJECT: ROLE-PLAY FULL MARKS: 100 DUE DATE (s): 7 SEPTEMBER 2023 (TAXATION) : 15 September 2023 (AUDITING) Internal Examiners Mr M Madwe MR S Ngcubhe INSTRUCTIONS: (a) Ensure that this paper has twenty (26) pages. (b) Students will be allocated to groups of up to six (6) members for taxation and group of five (5) for auditing. 1
ROLE-PLAY SCENARIO (SCRIPT) 1: GENERAL DEDUCTION FORMULA (S11(A) OF ITA) INTRODUCTION AND BACKGROUND Khulula (Pty) Ltd (Khulula) is primarily involved in the manufacturing and selling of clothes. The company has a financial year ending on 28 February 2023. The company was established in the early 2000's and had a very strong financial result. Khulula employs delivery drivers who carry out the deliveries of its products to retails partners who then sell Khulula's products directly to the final consumers. Khulula's delivery drivers do not have set working hours. The drivers must complete their deliveries during the business hours of the retail partners but once they have completed their deliveries for the day, their workday has come to an end, and the company policy allows them to go home. Understandably, the drivers generally try and carry out their daily deliveries as quickly as possible and sometimes disobey the rules of the road in doing so. On 1 July 2022, Manqoba, one of Khulula's delivery drivers was involved in accident while out on a delivery. The accident had resulted from the reckless driving on part of Manqoba. Manqoba was also driving at a speed which was almost 30km/h above the speed limit. Manqoba sustained serious injuries because of this incident and had to take six months off work to recover from this accident. This was not the first incident for the company and is leading into significant payouts due to losses suffered. Also the company is spending much money on claims by third parties due to injuries that are being caused by the behaviour of its employees and traffic fines. On 1 January 2023, Khulula paid Manqoba R450 000, related to the loss of income as well as a reimbursement of medical expenses incurred by himself. Khulula's accountant filled the company's annual income tax returns for 2023, the accountant included R450 000 which the company paid to Manqoba in statement of comprehensive income. In terms of assessment, South African Revenue Service (SARS) disallowed an amount of R450 000 claimed by Khulula as a deduction. Khulula was aggrieved by an assessment and objected an assessment, but SARS disallowed the objection and claimed that Khulula was not entitled to this deduction since it was not in the production of income. Khulula filed an appeal and selected alternative dispute resolution (ADR) but the ADR proceeding was dismissed. Khulula took SARS 2
to court, the court proceedings are scheduled to take place on 1 August 2023. The qualified judge