WORKINGS:

W1: Effect on deferred income tax

W1.1 Deferred income tax CA TB TD DT

Was
Opening balance 2013 - - - -
Purchase - - - -
Acc depreciation/ wear & tear (2013/2014/2015) - - - -
Closing balance 2015 - - - -
Depreciation/ wear and tear - - - -
Closing balance 2016 - - - -

W1.2 Deferred income tax CA TB TD DT

Should have been
Opening balance 2013 - - - -
Purchase 500 000.00 500 000.00
Depreciation/ wear and tear (2013) (50 000.00) (125 000.00) (75 000.00) (22 500.00) Dr. TE Cr DT
Closing balance 2013 400 000.00 375 000.00 (75 000.00) (22 500.00) Liability
Depreciation/ wear and tear (2014) (50 000.00) (125 000.00) (75 000.00) (22 500.00) Dr. TE Cr DT
Closing balance 2014 400 000.00 250 000.00 (150 000.00) (45 000.00) Liability
Depreciation/ wear and tear (2015) (50 000.00) (125 000.00) (75 000.00) (22 500.00) Dr. TE Cr DT
Closing balance 2015 350 000.00 125 000.00 (225 000.00) (67 500.00) Liability
Depreciation/ wear and tear (2016) (50 000.00) (125 000.00) (75 000.00) (22 500.00) Dr. TE Cr DT
Closing balance 2016 300 000.00 - (300 000.00) (90 000.00) Liability

Calculations:
Depreciation p/a = (500 000 - 0) x 10% x 1yr = 50 000
Wear and tear p/a = 500 000 / 4 years = 125 000

b) Current income tax effect

W1. Effect on current income tax

W1.1 Current income tax — 2013/2014/2015 Was Should have Difference

been
Profit before depreciation and rent [2015: 400 000 + 2014: 350 000 + 2013: (250 000 + rent expense: 500 000)] 1 500 000.00 1 500 000.00
Rent expense (500 000.00) -
Depreciation [(500 000 - 0) x 10% x 3yrs] - (150 000.00)
Profit before tax 1 000 000.00 1 350 000.00
Add depreciation [above] - 150 000.00
Less wear and tear [(500 000 ÷ 4yrs) x 3yrs] - (375 000.00)
Taxable profit 1 000 000.00 1 125 000.00

Current income tax 300 000.00 337 500.00 37 500.00 Dr- TE Cr. CTP

Should have
W1.2 Current income tax — 2016 Was been Difference
Profit before tax and depreciation 500 000.00 500 000.00
Depreciation [(500 000 - 0) x 10% x 1yr] - (50 000.00)
Profit before tax 500 000.00 450 000.00
Add depreciation [above] - 50 000.00
Less wear and tear [(500 000 ÷ 4yrs) x 1yr] - (125 000.00)
Taxable profit 500 000.00 375 000.00

Current income tax 150 000.00 112 500.00 (37 500.00) Cr. TE Dr. CTP

c) Journal entries

1 January 20X6 — prior year errors Debit Credit

Vehicle: cost (A) 500 000.00
Vehicle: acc. depreciation (-A) (500 000 - 0) x 10% x 3yrs (2013/2014/2015) 150 000.00
Deferred tax liability (L) 67 500 (Liability - Part (a): W1.2) - 0 (Part (a) W1.1) 67 500.00
 Current tax payable (L) 337 500(Liability - Part (b): W1.1) - 300 000(Liability - Part (b): W1.1) 37 500.00
Retained earnings (Eq) Balancing figure 245 000.00
Correcting journals: Vehicle expensed in 2013 This jnl corrects all the related errors made before 2016

31 December 20X6 — current year errors Debit Credit

Depreciation - vehicle (E) (500 000 - 0) x 10% x 1yr (2016) 50 000.00
Vehicle: acc. depreciation (-A) 50 000.00
Current tax payable (L) Part (b): W1.2 37 500.00
Income tax expense (E) 37 500.00
Income tax expense (E) Part (a): W1.2 - W1.1: 22 500 22 500.00
Deferred tax liability (L) 22 500.00
Correcting journals: Vehicle expensed in 2013 this jnl corrects the related errors made in 20X6

d) Disclosure on the face of the financial statements

APPLE LIMITED
(EXTRACT FROM) STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
R R
Restated
Profit before tax [2016: 500 000 - 50 000] 450 000.00 350 000.00
[2015: 400 000 - 50 000]
[20X6: 150 000 - (50 000 x 30%) or: 150 000 - 37 500 + 22 500 (jnls)]
Income tax expense [20X5: 120 000 - (50 000 x 0.3)] (135 000.00) (105 000.00)
Profit for the year 315 000.00 245 000.00
Other comprehensive income for the year - -
Total comprehensive income for the year 315 000.00 245 000.00

APPLE LIMITED
(EXTRACT FROM) STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
RETAINED
EARNINGS
NOTE R
Balance: 01/01/2015 - restated 121 000.00
- As previously reported Given (159 000.00)
- Correction of error [500 000 - (500 000 - 0) x 10% x 2 yrs)] x 0,7 3 280 000.00
Total comprehensive income - restated Per SOCI above 245 000.00
Balance: 31/12/2015 - restated 366 000.00
- As previously reported Given 121 000.00
- Correction of error [500 000 - (500 000 - 0) x 10% x 3yrs)] x 0,7 3 245 000.00
Total comprehensive income Per SOCI above 315 000.00
Balance: 31/12/2016 681 000.00

APPLE LIMITED
(EXTRACT FROM) STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
2016 2015
R R
ASSETS Restated
Vehicles 2016: TB: 3 000 000 + 500 000 - (500 000 - 0) x 10% x 4 3 300 000.00 3 600 000.00
2015: TB: 3 250 000 + 500 000 - (500 000 - 0) x 10% x 3
Accounts receivable Given 360 000.00 310 000.00
Bank Given 66 000.00 -
3 726 000.00 3 910 000.00
EQUITY AND LIABILITIES
Share capital Given 2 700 000.00 2 700 000.00
Retained earnings Per SOCIE above 681 000.00 366 000.00
Deferred tax liability Part (a): W1.2; Or: 90 000.00 67 500.00
2016: TB: 0 + 67 500 (jnl on 1 Jan 2016) + 22 500 (jnl on 31 Dec 2016: 22 500)
2015: TB: 0 + 67 500 (jnl on 1 Jan 2016)
Accounts payable Given 110 000.00 190 000.00
2016: TB: 145 000 + 37 500 (jnl on 1 Jan 2016) - 37 500 (jnl on 31 Dec 2016)
Current tax payable 2015: TB: 116 000 + 37 500 (jnl on 1 Jan 2016) 145 000.00 153 500.00
Bank overdraft - 433 000.00
3 726 000.00 3 910 000.00

e) Correction of error note

APPLE LIMITED
(EXTRACT FROM) NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDING 31 DECEMBER 2016

2015 2014
3 Correction of error R R

The company had incorrectly recorded the acquisition of a vehicle as an expense in a prior year.
The effect of the correction of the error is as follows:

Effect on the statement of comprehensive income

Increase: depreciation (500 000 - 0) x 10% 50 000.00
Decrease: taxation expense 50 000 x 30% (15 000.00)
Decrease: profit 35 000.00

Effect on the statement of financial position

Increase: property, plant and equipment
Increase: deferred tax liability
Increase: current tax payable
Increase: retained earnings
2015: [500 000 - (500 000 - 0) x 10% x 3 yrs)] 350 000.00 400 000.00
2014: [500 000 - (500 000 - 0) x 10% x 2 yrs)]
2015: [CA: 350 000 - TB: (500 000 - 500 000 x 25% x 3) x 30% (67 500.00) (45 000.00)
2014: [CA: 400 000 - TB: (500 000 - 500 000 x 25% x 2) x 30%
2015: [500 000 - (500 000 x 25% x 3)] x 30%
(37 500.00) (75 000.00)
2014: [500 000 - (500 000 x 25% x 2)] x 30%
2015: (Rent expense reversed 500 000 - Depr. to date 50 000 x 3yrs) x 70% after tax (245 000.00) (280 000.00)
2014: (Rent expense reversed 500 000 - Depr. to date 50 000 x 2yrs) x 70% after tax