During the current year of assessment Fallon sold her holiday apartment. She has never used the apartment for personal use. She acquired the apartment for R680 000 in 2010. She replaced the bath and shower taps that were damaged for R4 000. Interest on bond is R100 000. She made improvements on the apartment of R120 000. She sold the apartment for R1 120 000 including estate agent commission of R112 000. Fallon incurred transfer costs of R19 000. YOU ARE REQUIRED to determine the base cost of the apartment.a.R1 012 000b.R1 035 000c.R931 000d.R680 000
Question
During the current year of assessment Fallon sold her holiday apartment. She has never used the apartment for personal use. She acquired the apartment for R680 000 in 2010. She replaced the bath and shower taps that were damaged for R4 000. Interest on bond is R100 000. She made improvements on the apartment of R120 000. She sold the apartment for R1 120 000 including estate agent commission of R112 000. Fallon incurred transfer costs of R19 000. YOU ARE REQUIRED to determine the base cost of the apartment.a.R1 012 000b.R1 035 000c.R931 000d.R680 000
Solution
The base cost of the apartment is determined by adding the original purchase price to the cost of any improvements made to the property and any other costs directly related to the acquisition or disposal of the property.
Step 1: Start with the original purchase price. Fallon acquired the apartment for R680,000 in 2010.
Step 2: Add any costs of improvements made to the property. Fallon made improvements on the apartment of R120,000.
Step 3: Add any costs directly related to the acquisition or disposal of the property. Fallon incurred transfer costs of R19,000.
Note: The cost of replacing the bath and shower taps that were damaged for R4,000 can be considered as a repair cost, not an improvement, so it is not included in the base cost. Similarly, the interest on bond of R100,000 is not included as it is not a cost directly related to the acquisition or disposal of the property.
So, the base cost of the apartment is R680,000 (purchase price) + R120,000 (improvements) + R19,000 (transfer costs) = R819,000.
Therefore, none of the options provided (a.R1 012 000, b.R1 035 000, c.R931 000, d.R680 000) are correct. The base cost of the apartment, based on the information provided, is R819,000.
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