Bronx Ltd

In January 2023, Bronx Ltd relocated its manufacturing division. The lease on Bronx Ltd's old factory building expired on 31 December 2022 and it had to find new premises from 1 January 2023, as there was no possibility to renew the existing lease.

The company signed a lease contract for a new factory building with Greeff Ltd for 10 years, starting on 1 January 2023. Some modifications were allowed to be made to the factory building in order to install Bronx Ltd’s machinery on condition that Bronx Ltd restores the factory building to its original condition at the end of the lease term.

The following information is available:

• The commencement date of the lease is 1 January 2023.
• A deposit of R3 297 840 was paid on 30 November 2022 to secure the lease.
• Legal fees of R48 480 were incurred to obtain the lease. R36 000 of this amount is allocated costs of the company’s legal and risk management department. The balance was paid to an external law firm, 65% of which was reimbursed by Greeff Ltd.
• R89 600 was spent on modifying the factory building to suit Bronx Ltd’s needs.
• Greeff Ltd agreed to reimburse Bronx Ltd for all relocation costs. Relocation costs of R453 120 were incurred.
• The estimated cost of restoring the building to its original condition at the end of the lease term is R1 929 600. An appropriate pre-tax discount rate is 10% per annum.
• The annual lease payments are R6 750 000, payable in arears, and Bronx Ltd has guaranteed a residual value of R22 500 000.
• The interest rate implicit in the lease could not be determined. Bronx Ltd’s incremental borrowing rate is 12%.

 Source: Adapted from Daniels, J.C. 2023.

Timberu Ltd

On 31 December 2024, Timberu Ltd revalued its plant to net replacement cost. 

The company has elected to realise the revaluation surplus while the asset is being used and to offset the accumulated depreciation against the gross carrying amount of the asset on revaluation. No other assets have been revalued.

The company depreciates its plant on the straight-line basis over its estimated useful life. Depreciation for the current year must be calculated on the most recent revalued amount.

Details of plant:

The residual value and useful life of the plant did not change.

Assume a tax rate of 28%.

 Source: Rathnasamy, S. 2024.

 The following payments and costs were incurred in respect of inventories during February 2023:

• 1 000 units purchased once-off at R57.50 each (including VAT of 15%)
• R1 000 quantity discount received in total for purchasing more than 750 units
• Import duties of R300
• Shipping costs of R450
• Railage costs of R200 from Durban to Pretoria

Source: Adapted from Daniels, J.C. 2023

Cars4Africa Ltd.

Cars4Africa operates car rental agencies all over Africa and has a 31 December year-end. Cars4Africa is the service provider of several multinational organisations operating across the African continent. Cars4Africa has developed a client list of its key clients and is actively seeking to expand and build upon these business relationships.

Cars4Africa was sued by one of its clients after the client was involved in an accident on 1 August 2017 in a vehicle rented from the Cars4Africa fleet. The client sustained multiple injuries. He claims that the brakes of the car failed and that this caused the accident. The client has sued Cars4Africa for damages, arising from negligence for renting out a vehicle that had not been properly serviced and maintained. The matter was discussed with the legal representatives of Cars4Africa who believe that although the vehicle was not properly maintained (as evidenced by the vehicle’s maintenance records) it is unlikely that the company will be required to pay for the damages. However, if Cars4Africa is required to pay damages, the legal advisors estimate that it would cost no more than R1 500 000. The probability of this occurring is estimated to be only 15%. This estimate remained unchanged at 31 December 2017.

 Source: SAICA. 2021

Stucco Ltd

Stucco Ltd, a tile manufacturer, reported a profit before tax of R5 000 000 for the year ended 31 December 2022.

Included in the profit before tax are the following:

The deferred tax liability in the Statement of Financial Position at 31 December 2021 and 31 December 2022 is R168 000 and R126 000, respectively.

Temporary differences comprise the following:

• On 1 January 2019, the company acquired plant at a cost of R1 000 000. It is the company’s policy to depreciate plant over 5 years using the straight-line method. Capital allowances allowed by SARS on the plant are on the 40:20:20:20 basis.
• The following balances at 31 December 2022:

• SARS grants deductions for expenses when it is paid.

Assume that sufficient future taxable profits will be available against which deductible temporary differences can be utilised.

The company’s tax rate is 28%.

 Source: Adapted from Daniels, J.C. 2023.

Velocity Auto Sales (Pty) Ltd ("Velocity Auto") is a premium car dealership that offers customers the option to purchase a car either with or without a 3-year maintenance plan. The dealership launched a bundled package on 1 July 2024, where customers could purchase a Velocity-X sedan for R500,000, inclusive of a 3-year maintenance plan. Customers also have the option to purchase the car without the maintenance plan for R460,000. The standalone selling price of the maintenance plan is R90,000.

During the financial year, 10 cars were sold with the maintenance plan. Control of the vehicle is transferred to the customer upon payment and delivery of the car.

Source: Mqadi, S, 2025