Week 8 - Prepaid Exp & Trading Stock

Question 1

what does s23H say?

Answer 1

no deduction can be claimed for any expenses paid where the g/s/benefit will only be received in future; can apportion and there are a few exceptions

Question 2

when can we not apply s23H?

Answer 2

• exp is paid due to legislation, OR
• g/s are supplied within 6 months of the end of YOA, OR
• aggregate of amounts subject to s23H does not exceed R100 000

Question 3

s1 definition of trading stock?

Answer 3

• produced, manufactured, purchased by the taxpayer for the purpose of manu, sale or exchange by him/his behalf
• proceeds from disposal which forms part of GI

Question 4

case law for mining and separation of sand?

Answer 4

s22 is not applicable here when separation and disposal of the sand takes place in the same YOA. the sand deposit on the farm prior to separation from the ground does not constitute trading stock.

Question 5

trading stock vs spare parts?

Answer 5

revenue = deductible
capital = not deductible

Question 6

closing stock?

Answer 6

s22(1)
- add to taxable income
- use lower of cost and MV

Question 7

opening stock?

Answer 7

s22(2)
- deduct from taxable income last year c/b = this year o/b
- use FIFO for tax

Question 8

stock acquired for no consideration?

Answer 8

• deemed to have been acquired at market value
• SARS practice allows for a deduction
• included in year-end c/b at MV if unsold

Question 9

trading stock applied for private/domestic use or cons?

Answer 9

s22(8) recoupment =
- cost
- MV if cost cannot be determined

Question 10

when will deemed recoupment = MV for private use?

Answer 10

• disposal of TS other than ordinary course of trade for consideration below MV
• distributed in specie
• applied for any other purpose
• ceases to be held as trading stock

Question 11

donations to PBO recoupment?

Answer 11

amount taken into account in that YOA for the value of the trading stock

Question 12

stock not disposed of in ordinary course of business recoupment?

Answer 12

recoupment = MV

Question 13

stock is used/consumed for trade recoupment?

Answer 13

(given away in a promotion)
recoupment of MV and s11a deduction for exp incurred of same amount

Question 14

provisos to s22(8)?

Answer 14

• used/cons for trade = s11a deduction for exp incurred of the same amount
• no recoupment allowed when a para (jA) asset is applied/used as a capital asset

Question 15

acquisition and disposal of trading stock?

Answer 15

cannot claim s11a deduction in respect of TS acquired:
- if stock not disposed during the year
- stock not included in c/b at year end

Question 16

what are the proceeds from sale of assets similar to TS?

Answer 16

special inclusion

Question 17

what is the o/b value of stock disposed of and reacquired?

Answer 17

MV