Question

Ngwenya (Pty) Ltd incurred the following legal expense during the 2022 year of assessment ended 28 February 2022: i) R7 000 legal costs for debt collection. ii) R22 000 legal costs relating to the drawing up of an agreement to purchase a piece of land. iii) R48 000 relating to a dispute with a client of Ngwenya (Pty) Ltd who sued the company for supplying incorrect goods. Ngwenya (Pty) Ltd's lawyers were successful in defending the company on this matter. Determine the amount that is deductible by Ngwenya (Pty) Ltd relating to legal fees. a. R7 000 b. R55 000 c. R77 000 d. R29 000​

Answer 1

If the company incurred legal expense during the 2022. The amount that is deductible by Ngwenya (Pty) Ltd relating to legal fees is R29,000.

Legal expenses deductible

Using this formula

Legal expenses deductible= Legal costs for debt collection+ Legal costs relating to the drawing up of an agreement

Let plug in the formula

Legal expenses deductible=R7 000 +R22,000

Legal expenses deductible=R29,000

Therefore the amount that is deductible by Ngwenya (Pty) Ltd relating to legal fees is R29,000.

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