Financial Accounting 3A – ACC301

Question Book 2023: IAS 12 – Income Taxes

Question Topic
Brandy Limited Recording VAT, income tax (including employees’ tax and
provisional tax) and dividend tax.
New Look Limited Income tax and deferred tax calculations and disclosure
Crax Limited Taxation and property, plant and equipment (cost model)
Moments Limited Income tax and deferred tax calculations
Rupert Limited Income tax and deferred tax calculations and disclosure
Msibi Limited Income tax and deferred tax calculations and disclosure
Mogane Limited Income tax and deferred tax calculations, disclosure and general
ledger accounts
Medix Limited Income tax and deferred tax calculations and disclosure
PPL Limited Taxation and property, plant and equipment (cost model)
Watchnet Limited Income tax and deferred tax calculations and disclosure
Alfa Limited Taxation and property, plant and equipment with revaluation

1
Question - Brandy Limited

Brandy Limited is a registered VAT vendor. The company reflected the following asset and
liability balances at 31 December 2023:

BRANDY LIMITED
(Extract from) TRAIL BALANCE AS AT 31 DECEMBER 2023
Debit Credit
R R
Vehicles at cost 150 000
Accumulated depreciation on vehicles 30 000
Employees tax payable 9 000
VAT Control account 3 000
Tax payable 12 000
Bank account 195 000
Inventories 120 000
Trade receivables 120 000
Trade payables 30 000

During January 2024, Brandy Limited entered into the following transactions:
• On 2 January 2024, Brandy Limited purchased in inventory to the value of R30 000, on
credit, from a supplier that is not a VAT vendor (not registered for VAT).
• On 5 January 2024, Brandy Limited paid R9 000 to SARS for employees’ tax due on
December 2023 salaries.
• On 10 January 2024, Brandy Limited sold goods on credit to customers with a cost
price of R400 000. The customers are not registered for VAT. Brandy Limited sold
goods to customer at a mark-up of 25% on cost price.
• On 11 January 2024, a second-hand delivery truck was purchased for R373 750 on
credit from an individual not registered for VAT.
• On 12 January 2024, Brandy Limited made a payment to SARS of R9 000. This
payment included the second provisional tax payment, a penalty for late payment of
provisional tax of R1 000 and interest of R360.
• On 30 January 2024, Brandy Limited received the 2023 tax assessment, indicating the
total tax amount for 2023 to be R15 000. This then indicated that on 31 December
2023, the provision for income tax for the 2023 tax year, in the books of Brandy
Limited, was underestimated by R2 360. Brandy Limited, did not object to the 2023
assessment.
• On 30 January 2024, Brandy limited provided amount of R620 000 for salaries. The
amount was calculated as follows:
Gross salaries R788 250
Employees tax deducted from employees’ due to SARS (R 23 250)
Pension fund contributions deducted, due to pension fund (R145 000)
R620 000
• On 31 January 2024, Brandy Limited declared dividends of R180 000.

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Additional information:
• VAT is charged at 15% where applicable and the income tax rate remained at 27% for
the 2023 and 2024 tax year and dividend tax at 15%.
• Brandy Limited has a 31 December year-end.
• Brandy Limited uses a perpetual inventory system to record cost of sales.

YOU ARE REQUIRED TO:

1. Prepare journal entries in the Books of Brandy Limited, for the transactions entered into by Brandy
Limited during January 2024, listed above.
Journal narrations are not required.
Journals MUST be dated.

3
Question – New Look Limited (25 Marks)

New Look Limited requested your assistance with the calculation and disclosure of all balances
related to income tax for the year ended 31 December 2019. The directors provided you with
the following information:

1. On 31 December the profit before tax amounted to R250, (31 December 2018:
R50 000).

2. Profit before tax included:

• Penalties paid for the late submission of VAT returns of R720, (2018: R0).
• Depreciation of R45 000, (2018: R56 000).
• Adjustment made for an increase in the allowance for credit losses of R12 000,
(2018: adjustment for decrease of R3 200).
• Provision for leave pay of R6 200 (2018: R5 400).

3. The allowances for wear and tear allowed as a deduction by the South African Revenue
Services was correctly calculated to be R62 000 (2018: R60 000).

4. The South African Revenue Services allows an annual deduction of 25% on the
allowance for credit losses.

5. Allowances for credit losses amounted to R10 000 on 1 January 2018.

6. The carrying amount of property, plant and equipment was correctly calculated to be
R241 000 on 31 December 2019, (31 December 2018: R286 000).

7. Property, plant and equipment included plant and equipment as well as delivery
vehicles. The entity did not own any property.

8. The tax base of property, plant and equipment was correctly calculated to be R218 000
on 31 December 2019, (31 December 2018: R280 000).

9. On 31 December 2018 the directors were of the opinion that the company will earn
sufficient taxable profits in future to be able to use the assessed loss. They have however
now informed you that the probability that taxable profit will be earned for 2020 and
future years is remote.

Additional information:
1. The tax rate was 28% for 2019 and 30% for 2018.
2. Capital gains are taxed at an inclusion rate of 80%.
3. There were no items causing temporary or other differences other than those arising
from the information provided above.
YOU ARE REQUIRED TO:
1. Calculate the taxable income and current tax of New Look Limited for the year ended
31 December 2019 and 2018. SHOW ALL CALCULATIONS. (7 Marks)

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2. Calculate the balance of the deferred tax account on 31 December 2018 and 31 December 2019,
using the reporting date method. (8 Marks)
3. Prepare and disclose the following notes to the annual financial statements of New Look Limited
for the year ended 31 December 2019, with comparatives:
- Income tax expense note with tax rate reconciliation;
- Deferred tax note

You answer must comply with International Reporting Standards (IFRS)

COMPARATIVE FIGURES ARE REQUIRED. (10 Marks)

5
Question - Crax Limited (50 Marks)

Crax Limited requested your assistance with the calculation and disclosure of all balances
related to income tax and property, plant and equipment for the year ended 28 February 2021.
The directors provided you with the following information:

On 28 February 2021 the profit before tax amounted to R250 000 (2020: R140 000).

On 28 February 2021 the statement of financial position reflected the following balances:

2021 2020
Note R R
Property, plant and equipment (2) 4 977 836 3 663 178
Accounts receivable (3) 450 000 360 000
Leave pay provision (4) 12 000 -
Income received in advanced (5) 15 000 10 000

Additional information:

10. Profit before tax included:

• Penalties paid for the late payment of employees’ tax R7 200 (2020: R0).
• Dividends received of R105 000 (2020: R92 000).
• Research cost of R125 000 (2020: R0)

11. Property, plant and equipment included the following:

Land and buildings:

Land and buildings were purchased for R2 300 000 on 1 March 2017. 40% of the original
cost price is allocated to the land and 60% to buildings. An addition to the buildings were
completed on 31 August 2020 at a total cost of R250 000.

Buildings are depreciated on the reducing balance method at 5% per annum.

SARS does not allow for the deduction of any wear and tear allowances on buildings.

Manufacturing equipment:
Manufacturing equipment was acquired on 1 March 2019 for R1 200 000 and on 2 January
2021 for R520 000.

Manufacturing equipment with an original cost price of R100 000 was sold for R115 000
on 27 February 2021.

Manufacturing equipment is depreciated on the straight-line method over 5 years.

SARS allows for the deduction of wear and tear at 25% per year, on the straight-line
method, with no apportionment.

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 Vehicles:
Vehicles were acquired on 1 March 2020 for R500 000. Another delivery vehicle was
purchased on 1 July 2020 for R135 000. In addition to the cost price, R12 000 was paid to
the supplier for adding a custom-made roof rack for deliveries and R2 000 for special
training for the drivers.

Vehicles are depreciated on the straight-line method at 20% per annum.

SARS allows for the deduction of wear and tear at 25% per annum, on the straight-line
method, with no apportionment.

Computer equipment:
Computer equipment was purchased on 1 March 2019 for R900 000. All the original
computer equipment was sold on 31 August 2020 for R500 000 and replaced with new
computer equipment at a cost of R1 200 000, on the same date.

Computer equipment is depreciated on the straight-line method over 3 years.

SARS allows for the deduction of wear and tear at 33.33% per annum, on the straight-line
method, with no apportionment.

12. The balance for accounts receivable is reflected after taking into account a provision
for credit losses of R4 000 (2020: R3 000). No provision for credit losses were provided
for in 2019.

The South African Revenue Services allows an annual deduction of 25% on the
allowance for credit losses.

13. There was no provision made for leave pay in 2019 and 2020.

14. Income received in advance is for rent received. There was no income received in
advance in 2019.

15. SARS allows research costs to be deducted over four (4) years, calculated on the
straight-line method.

16. On 1 March 2019 Crax had an assessed loss of R50 000.

Additional information:
4. The tax rate was 28% for 2019, 2020 and 2021.
5. Capital gains are taxed at an inclusion rate of 80%. For all property, plant and
equipment the base cost of the asset was equal to the cost price.
6. There were no items causing temporary or other differences other than those arising
from the information provided above.

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YOU ARE REQUIRED TO:
1. Calculate the taxable income and current tax of Crax Limited for the year ended 28 February 2021.
SHOW ALL CALCULATIONS. (19.5)

2. Prepare and disclose the following note to the annual financial statements of Crax Limited for the
year ended 28 February 2021 WITH COMPARATIVES:
- Income tax expense note with tax rate reconciliation

You answer must comply with International Reporting Standards (IFRS) (5.5)

3. Prepare and disclose the following note to the annual financial statements of Crax Limited for the
year ended 28 February 2021:
- Property plant and equipment COMPARATIVES ARE NOT REQUIRED

You answer must comply with International Reporting Standards (IFRS) (25)

8
Question – Moments Limited
Moments Limited is in the process of drafting their annual financial statements for the year
ended 31 December 2018 and they requested your assistance with the calculation of current
and deferred taxation. The directors provided you with the following information for the year
ended 31 December 2018.
1. The profit before tax for the year ended 31 December 2018 amounted to R900 000 and
the loss for the year ended 31 December 2017amounted to R5 000.
2. Property plant and equipment consisted only of machinery. All the machinery was
purchased on 30 June 2016 for R2 500 000. On 30 September 2017 machinery with an
original cost price of R500 000 was sold for R390 000. On 31 December 2017
machinery with an original cost price of R100 000 was sold for R10 000. It was
replaced with new machinery on 1 January 2018, at a cost of R150 000. Machinery is
depreciated on the straight-line method over the estimated useful life of 5 years.

The South African Revenue Services (SARS) allows wear and tear at 25% per annum,
on the straight-line method, with no apportionment.
3. The SARS allows an annual deduction of 25% of the allowance for credit losses. The
provision for credit losses included in the statement of financial position was as follows:
2016: R12 000
2017: R14 000
2018: R18 000

4. The annual insurance premiums are paid in advance, in March each year. The pre-paid
expenses included in the statement of financial positions was as follows:
2016: R40 000
2017: R45 000
2018: R52 000

5. The tax rate was 30% for 2016 and 2017 but changed to 28% in 2018.
6. Capital gains are taxed at an inclusion rate of 80%.
7. There were no items causing temporary or other differences other than those arising
from the information given.

YOU ARE REQUIRED TO:

1. Calculate the taxable income and current tax of Moments Limited for the year ended 31 December
2017 and 2018 (18 Marks)
2. Calculate the balance of the deferred tax account of Moments Limited on 31 December 2017 and
2018 by using the reporting date method. (12 Marks)
SHOW ALL CALCULATIONS

9
Question - Rupert Limited
The directors of Rupert Limited requested your assistance with the calculation and disclosure
of the company’s income tax.
The directors provided you with the following extract from the trail balance for the year ended
28 February 2019.
RUPERT LIMITED
TRAIL BALANCE FOR THE YEAR ENDED 28 FEBRUARY 2019
2019 2018
Notes R R
dr/(cr) dr/(cr)
Accounts payable (1 200 000) (980 000)
Rental income received in advance 1 (150 000) (80 000)
Accounts receivable 2 400 000 2 800 000
Allowance for credit losses 2 (24 000) (28 000)
Land at cost 2 500 000 2 500 000
Buildings at cost 3 000 000 3 000 000
Accumulated depreciation on buildings 3, 5 (794 724) (678 657)
Machinery at cost 4 2 500 000 2 950 000
Accumulated depreciation on machinery 5 (1 565 000) (885 000)
Penalties and fines paid 6 5 000 3 000
Research costs 7 - 180 000
Dividends received (25 000) (14 000)
Depreciation 3, 4 638 567 698 684
Profit before tax (3 240 000) (1 580 000)

ADDITIONAL INFORMATION:

1. The unoccupied property was rented out, with rental payments received in advance.
The balance on the rental income received in advance account on 1 March 2018 was
R70 000.
2. The South African Revenue Services (SARS) allows an annual deduction of 25% on
the allowance for credit losses. No provision was made for an allowance for credit
losses in 2017.
3. Buildings are depreciated at 5% per annum on the reducing balance method. No
buildings were acquired or sold during 2018 or 2019.
4. Depreciation on machinery is calculated at 20% per annum on the straight-line method.
Machinery with an original cost price of R450 000 and a carrying amount of R292 500
on the date of disposal was sold for R475 000 on 31 May 2018. The asset was originally
purchased on 1 September 2016. The base cost of this asset was calculated to be
R455 000. No other machinery was acquired or sold during 2018 or 2019.
5. SARS allows for wear tear on the straight-line basis with no apportionment at 5% per
annum on buildings and 25% per annum on machinery.

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 6. The penalties and fines were paid to SARS for the late payment and incorrect
calculation of provisional income tax.
7. Research costs were only incurred in 2018. No research cost was incurred prior to 2018
or in 2019. SARS allows for the deduction of research costs incurred over 4 years,
straight-line (no apportionment for a part of a year).
8. The tax rate remained unchanged at 28% since 2017.
9. On 1 March 2017 the company had an assessed tax loss of R650 000.
10. Capital gains are taxed at an inclusion rate of 80%.
11. There were no items causing temporary or other differences other than those arising
from the information given.

YOU ARE REQUIRED TO:

1. Calculate the taxable income, current tax and deferred tax movement of Rupert Limited for the
year ended 28 February 2019 and 2018. ( 19 Marks)
2. Prepare and disclose the income tax expense and tax reconciliation note to the statement of profit
or loss and other comprehensive income of Rupert Limited for the year ended 28 February 2019,
with comparatives. (6 Marks)

COMPARATIVE FIGURES ARE REQUIRED.

SHOW ALL CALCULATIONS

11
Question Msibi Limited:
The trail balance of Msibi Limited for the year ended 31 December 2019 is as follows:
R R
Credits
Share capital 500 000
Retained earnings – opening balance on 1 036 400
1/1/2019 330 200
Long term liabilities 9 000
Accumulated depreciation: Buildings – 38 500
31/12/2018 2 650 000
Accumulated depreciation: Plant – 31/12/2018 72 500
Sales 45 000
Accounts payable
Dividends received
1 200 000
Debits 450 000
Land at cost 385 000
Buildings at cost 660 990
Plant at cost 2 610
Investments 98 000
Deferred tax asset: 1/1/2019 125 000
Inventory 1 325 000
Accounts receivable 362 000
Cost of sales 23 000
Operating expenses (excluding depreciation) 50 000
Interest paid
Dividends paid

Additional information:
1. Provision must still be made for the current tax expense and deferred tax expense for
the year ended 31 December 2019. The following tax rates are applicable:
Normal tax rate for 2019: 28%, for 2018: 29%
2. The assets of Msibi Limited were purchased as follows:
Land (owner occupied) 1/1/2018
Buildings (owner occupied) 1/1/2018
Plant 1/7/2018
All assets are accounted for according to the cost model.

3. The following are the differences between the allowances for tax purposes and the
allowances that the company applies in the financial statements:
Company SARS
Land None None
Buildings 2% per year None
Plant 20% per year 20%

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 Depreciation on buildings are calculated on the reducing balance method and on plant
on the straight-line method. Wear and tear is calculated on the straight-line method
with apportionment.

SARS allows 25% of the allowance for credit losses as a deduction.

4. Donations of R15 000 and fines for environmental pollution of R70 000 is included in
operating expenses. The donations paid and the fines and not deductible for tax
purposes.

5. The accounts receivable balance in the trail balance was calculated as follows:
2019 2018
Age analysis (list of debtors) R145 000 R180 000
Allowance for credit losses (R 20 000) (R 12 000)
R 125 000 R 168 000

6. The deferred tax balance on 31 December 2018 arose as a result of deductible

temporary differences of R9 000 relating to the allowance for credit losses.

7. Deferred tax is provided on all temporary differences using the statement of financial
position approach. Thee is assurance beyond reasonable doubt that there will be
sufficient taxable profit in the future to realise any tax benefits.

Required:
Prepare the notes to the annual financial statements that relate to the income tax of Msibi
Limited for the year ended 31 December 2019 to comply with IFRS (IAS 12).
Accounting policy notes are not required.

13
Question Mogane Limited:
The following is the abridged trail balance of Mogane Limited at 31 July 2019:
Dr Cr
R R
Credits
Share capital 13 000
Retained earnings – opening balance on 160 450
1/8/2018 550 000
Long-term borrowing 42 042
Deferred tax liability – opening balance on 70 000
1/8/2018 600 000
Land at cost 250 000
Machinery at cost 180 000
Vehicles at cost 70 000
Accumulated depreciation: Machinery 65 000
Accumulated depreciation: Vehicles 30 000
Investments at fair value 110 000
Pre-payments (Balance on 31/7/2018 = R0) 137 492
Accounts receivable 50 000
Bank 227 000
Accounts payable 30 000
Profit before tax
Tax payable (SARS) – provisional tax payments

Additional information:
1.The trail balance for the year has not been finalized as the tax calculations must still be
done.

2.Included in profit before tax are dividends received of R10 000, fines paid of R2 500 and a
total depreciation charge of R85 000.

3.The tax base of property, plant and equipment on 31 July 2019 is as follows:
Land – no allowance claimable R0
Machinery – tax allowance of 20% p. a. straight-line R240 000
Vehicles – tax allowance of 16.7% p. a. straight-line R133 100
R373 100
The total tax allowances claimable on property, plant and equipment for the year ended
31 July 2019 are R161 750.

4. The company provides for deferred tax on all temporary differences using the statement of
financial position approach. There are no other temporary differences except for those
mentioned in the question.

5. The tax rate remained at 28% for the past two years.

6.The long-term borrowing is a mortgage loan financing the land and factory building.

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7.There is no assessed tax loss to be carried forward from previous years.

8.The company made the following provisional tax payments: 31/1/2019 R15 000
31/7/2019 R15 000

9.On 31 October 2018 the company received the tax assessment for the 2018 tax year and
paid R5 500 in respect of current tax due for the year ended 31 July 2018.

Required:

1. Prepare the notes to the annual financial statements that relate to the income tax of
Mogane Limited for the year ended 31 July 2019 to comply with IFRS (IAS 12).
Accounting policy notes are not required.

2. Prepare the general ledger accounts for tax expense, tax payable (SARS) and deferred
tax in the general ledger of Mogane Limited, for the year ended 31 July 2019.

15
Question Sibiya:
Sibiya Limited was incorporated on 1 January 2018. The profit before tax for the year ended
31 December 2019 amounted to R410 000.
The following items are included in the calculation of profit before tax for the year ended
31 December 2019:
Depreciation on manufacturing equipment R30 000

The South African Revenue Service allows the following deductions:

Tax allowance on manufacturing machinery R120 000

Additional information:

1. During December 2019 rental amounting to R24 000 was received in respect of January
2020. Rental income is taxable in the year that it is received.
2. The assessment for the 2018 tax year reflected an assessed loss of R160 000. This
agreed with the records of the company.
3. The company operates in a risky industrial sector and at this early stage of the
company’s existence; there is no certainty of future taxable income against which tax
losses can be utilized.
4. For the 2018 tax year temporary differences consisted of taxable temporary differences
on manufacturing equipment amounting to R130 000, before taking into account the
assessed loss. The cost price of the plant was R300 000 and depreciation on the plant
amounted to R30 000 for 2018.
5. Deferred tax is provided on all temporary differences using the statement of financial
position approach. The tax rate for all years under review is 28%.
6. Assume that the residual value, useful life and depreciation method of all assets were
reviewed at each financial year and that there were no changes.

Required:

1. Calculate the current tax expense and deferred tax expense of Sibiya Limited for the
year ended 31 December 2019.
2. Disclose the relevant tax notes to the statement of profit and loss and other
comprehensive income and statement of financial position of Sibiya Limited for the
year ended 31 December 2019. Your answer must comply with IFRS. Only the notes
required by IAS 12 must be disclosed. Comparative amounts are not required.

16
Question Tjibha:
The following is an extract from the statement of financial position general ledger accounts of
Tjibha Limited, a manufacturer of sporting equipment, for the year ended 28 February 2018.
Income Tax payable (SARS) – current tax
31/8/2017 Bank (2018 tax 18 000 1/3/2017 Opening balance b/d 7 600
30/9/2017 year) 16 000 15/8/2017 Current tax expense 8 120
28/2/2018 Bank (2017 tax 18 000 (2017 adjustment)
year) 28/2/2018 Current tax expense
Bank (2018 tax (2018) 39 900
year)
28/2/2018 Closing balance c/d 3 620
55 620 55 620
1/3/2018 Opening balance 3 620

UK Inland Revenue Service (Foreign tax)

28/2/2018 Closing balance 21 000 28/2/2018 Tax expense 21 000
c/d (2018)

21 000 21 000
1/3/2018 Opening balance 21 000

Deferred tax
1/3/2017 Deferred tax expense 1 500 1/3/2017 Opening balance 43 500
(rate change) b/d 8 400
Deferred tax
expense (2018)
28/2/2018 Closing balance c/d 50 400
51 900 51 900
1/3/2018 Opening balance 50 400
b/d

Additional information:
1. The SA normal tax rate changed from 29% in 2017 to 28% in 2018.
2. The deferred tax balance comprised of taxable temporary differences relating to an
accelerated tax allowance on plant and machinery. Deferred tax is provided for on all
temporary differences using the statement of financial position approach.
3. The adjustment in respect of the 2017 current tax expense relates to the 2017 tax
assessment received on 15 August 2017. Tjibha Limited claimed expenses of R28 000
which were not allowed as a deduction by SARS.
4. The profit before tax for the year ended 28 February 2018 amounted to R325 000.
Included in profit before tax are the following items:
Donations paid R5 500
Dividends received R20 000
Fines on late payment of PAYE R2 000
Income received from the United Kingdom (UK) R140 000

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5. The income received from the UK is not taxable in South Africa in terms of a double
tax agreement.
6. You can assume that the calculations for current tax and deferred tax in the above
general ledger accounts are correct.
Required:
Disclose tax in the notes to the annual financial statements of Tjibha Limited for the year
ended 28 February 2018 according to the requirements of IAS12.
-The tax rate reconciliation must be given.
- No calculations for current tax or deferred tax are required.
- No accounting policy notes are required.
- No other notes are required.
- Comparative amounts are not required.

18
Question Medix Limited (30 Marks)

Medix Limited owns a number of private hospitals and clinics in Mpumalanga. The directors
of Medix Limited requested you to assist them with the calculation and disclosure of the tax
expense in the statement of profit or loss and other comprehensive income and notes for the
year ended 21 December 2022. They provided you with the following draft statement of profit
or loss and other comprehensive income and additional information:

Medix Limited
Draft statement of profit or loss and other comprehensive income for the year ended
31 December 2022.
2022 2021
R R
Revenue 30 000 000 23 000 000
Cost of sales (19 000 000) (17 000 000)
Gross profit 11 000 000 6 000 000
Other income 50 000 60 000
Other expenses (9 950 000) (5 900 000)
Profit before tax 1 100 000 160 000

Extract from the trial balance for the year ended 31 December 2022:
2022 2021
R R
Trade receivables 5 000 000 2 000 000
Pre-paid expenses (2020: R100 000) 420 000 350 000
Income received in advance 7 000 6 000

Additional information:

1. Other income include the following:

2022 2021
R R
Rent received (1) 42 000 36 000
Dividends received 2 000 8 000
Interest received 6 000 16 000
50 000 60 000
(1) Income received in advance is for two months of rent received in advance. No rental
income was received in the years before 2021.

2. Other expenses include the following:

2022 2021
R R
Depreciation (2) 950 000 830 000
Penalties for late submission of vat returns 8 000 2 000
Provision for leave pay 100 000 90 000
Interest paid 6 000 16 000
(2) Wear and tear was correctly calculated to be R800 000 (2021: R900 000). Wear and
tear allowances was allowed for all items in property, plant and equipment.

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 (3) No provision was made for leave pay before 2021.

3. The company adopted the cost model for all property, plant and equipment.
Equipment with an original cost price of R120 000 was sold on 31 July 2022 for
R180 000. On the date of sale, the carrying amount of equipment was R72 000.

On the date of sale, the tax value of the equipment was R60 000 and the base cost
R135 000.

4. Trade receivables are presented in the trial balance, after an allowance for credit
losses of R15 000 (2021: R7 000) have been provided for. SARS allows an annual
deduction of 25% on the allowance for credit losses. The provision for credit losses
in 2020 was R6 000.
5. The tax rate has remained at 27% since 2021, it was 28% in 2020. The balance of
the deferred tax liability account on 31 December 2020 was R250 000.

6. Capital gains are taxed at an inclusion rate of 80%.

7. There were no items causing temporary or other differences other than those arising
from the information given.

8. Medix Limited and all the entities they trade with are registered VAT vendors and
VAT is charged at 15%

YOU ARE REQUIRED TO:

1. Calculate the taxable income, current tax and deferred tax movement of Medix Limited for the
year ended 31 December 2022 and 2021. (21 Marks) SHOW ALL CALCULATIONS.

2. Prepare and disclose the income tax expense note to the statement of profit or loss and other
comprehensive income of Medix Limited for the year ended 31 December 2022, with
comparatives. Your answer must comply with International Financial Reporting Standards (IFRS).
(9 Marks)
COMPARATIVE FIGURES ARE REQUIRED.

20
Question PPL Limited (15 Marks)

The directors of PPL Limited requested your assistance in preparing the annual financial
statements for the year ended 28 February 2023. The directors provided you with the following
information and balances:

Balances as at 1 March 2022:

Buildings Equipment
R R
Cost 2 500 000 6 000 000
Accumulated 1 000 000 2 400 000
depreciation
Depreciation Straight-line Straight-line over 5 years
method over 20 years
Wear and tear None Written off over 4 years with no
rate allowed by apportionment
SARS

Extract from the trial balance for the year ended 28 February 2023:
2023
R
Trade receivables 5 000 000
Pre-paid expenses 230 000
Income received in advance (712 000)

Buildings:
A new addition to the building was completed on 1 November 2022 at a cost of R850 000
(excluding VAT). The building was only taken into use on the date of completion.

Equipment with a cost price of R900 000 was used in building the new addition to buildings
from 1 March 2022 up to the date of completion. This cost has not yet been taken into account
in the above cost of the addition.

Equipment:
All equipment included in the opening balance on was purchased on 1 March 2020.
On 1 June 2022, some of this equipment with an original cost price of R50 000 was sold for
R60 000.

Additional information:
• There were no transactions affecting property, plant and equipment other than those
listed above.
• The tax rate has remained at 27% since 2020 and the VAT rate at 15%.
• The inclusion rate for capital gains tax has been 80% since 2020.
• PPL Limited and all the entities they trade with are registered Vat vendors.

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YOU ARE REQUIRED TO:
1. Prepare and disclose the following notes to the statement of financial position, of PPL Limited as
at 28 February 2023.
- Property, plant and equipment - the total column of the note is not required. (11 Marks)
- Deferred tax (4 Marks)

COMPARATIVE FIGURES ARE NOT REQUIRED

SHOW ALL CALCULATIONS

22
Question Watchnet (19 Marks)

The directors of Watchnet Limited requested you to assist them with the calculation and
disclosure of current tax and deferred tax in their annual financial statements for the year ended
31 December 2022. They provided you with the following information:

1. Profit before tax for the year ended 31 December 2022 amounted to R1 400 000.

2. Extract from the trial balance for the year ended 31 December 2022:
2022 2021
R R
Income received in advance 154 000 133 000
Pre-paid expenses 36 000 24 000

3. The following income and expenses are included in profit before tax:
2022
R
Depreciation 800 000
Profit on disposal of plant 55 000
Research cost 112 000
Leave pay provision 66 000

4. The South African Revenue Services (SARS) provides for a wear and tear allowance
on all property, plant and equipment for the 2022 tax year of R900 000 and research
cost may be written of over 4 years. In 2021 the research cost deducted in the calculation
of profit before tax amounted to R84 000.

5. The profit on disposal was as a result of a plant that was sold for R200 000 (excluding
VAT). On the date of sale the fixed asset register reflected the following information:

Cost price R180 000

Tax value R120 000
Tax base R185 000

6. Property, plant and equipment included machinery acquired on a lease contract with the
details listed below:
• Whatchnet Limited entered into this lease agreement to obtain the right of use
of machinery on 1 January 2022.
Present value of the lease payments: R80 000
Lease term: 3 years
Instalments: 3 annual instalments of R33 308 payable in arrears on 31
December each year.

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 Ownership will be transferred to Whatchnet Limited upon payment of the last
instalment.
Interest rate implicit in the lease: 12% per annum.
Whatchnet Limited paid the VAT amount cash on 1 January 2022.

• Whatchnet Limited entered into a lease contract 1 January 2022 for office
equipment. The fair value of the computer equipment at inception of the lease
was R11 000. The lease was regarded as a lease for a low value asset and
Whatchnet Limited elected not to recognise the underlying asset and liability
Lease term: 3 years
Instalments (excluding VAT): Year 1 Annual instalment of R5 700
Year 2 Annual instalment of R4 500

Year 3 Annual instalment of R3 300

The first instalment is due on 31 December 2022.

7. On 31 December 2021 the company had an assessed loss of R17 000 and the deferred
tax account had a credit balance of R112 000.

8. The tax rate has remained at 28% since 2018 but change to 27% for the 2022 tax year.

9. Capital gains are taxed at an inclusion rate of 80%.

10. There were no items causing temporary or other differences other than those arising
from the information given.

11. Watchnet Limited and all the entities they trade with are registered VAT vendors and
VAT is charged at 15%.

YOU ARE REQUIRED TO:

1. Calculate the taxable income, current tax and deferred tax movement of Watchnet Limited for the
year ended 31 December 2022. (16 Marks)
SHOW ALL CALCULATIONS.
2. Prepare and disclose the income tax expense note to the statement of profit or loss and other
comprehensive income of Watchnet Limited for the year ended 31 December 2022. Your answer
must comply with International Financial Reporting Standards (IFRS), but the tax rate
reconciliation and comparatives are not required. (3 Marks)

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Question Alfa Limited (25 Marks)

The directors of Alfa Limited requested you to assist them with the calculation and disclosure
of current tax and deferred tax in their annual financial statements for the year ended
31 December 2019. They provided you with the following information:

4. Extract from the trail balance for the year ended 31 December 2019
2019 2018
R R
Property, plant and equipment To be calculated 14 672 531
Trade receivables 5 100 000 2 600 000
Income received in advance (28 000) (26 000)
Trade payables 4 500 000 3 500 000

5. Profit before tax for the year ended 31 December 2019 amounted to R3 200 000
(2018: R2 500 000).

6. The following income and expenses are included in profit before tax:
2019 2018
R R
Donations paid (not deductible) 55 000 14 000
Dividends received 30 000 60 000
Research cost 80 000 40 000
Depreciation – building ? 214 344
Depreciation – plant ? 1 000 000
Depreciation - vehicles ? 400 000

7. Property, plant and equipment consisted of:

2019 2018
R R
Land 6 000 000 6 000 000
Building 3 868 904 4 072 531
- Cost 5 000 000 5 000 000
- Accumulated depreciation (1 131 096) (927 469)
Plant and equipment To be calculated 3 000 000
- Cost See note 7 5 000 000
- Accumulated depreciation (2 000 000)
Vehicles To be calculated 1 600 000
- Cost See note 8 2 000 000
- Accumulated depreciation (400 000)
Total property, plant and equipment To be calculated 14 672 531

8. The company adopted the cost model for land, buildings and vehicles and the
revaluation model for plant and equipment.

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 9. Buildings are depreciated at 5% per annum on the reducing balance method. The South
African Revenue Services (SARS) does not provide for any wear and tear allowance
on the building.
10. Plant and equipment are depreciated on the straight-line method over the estimated
useful life of 5 years. No plant or equipment were acquired or disposed of during the
year. The company does not have any intention to sell the plant and equipment and the
revaluation surplus is written off as the asset is used.

The company adopted the revaluation model for plant. Plant and equipment were
revalued on 1 January 2019 for the first time. No adjustments for the revaluation or
impairment of plant and equipment was done before 1 January 2019. The fair value of
plant and equipment on 1 January 2019 was R4 650 000.

SARS allows for a wear and tear allowance on plant and equipment at 25% per annum
on the straight-line method, with no apportionment.

11. Vehicles are depreciated on the straight-line method over the estimated useful life of 5
years. All vehicles were purchased on 1 January 2018. On 31 August 2019, a vehicle
with an original cost price of R150 000 was sold for R122 000. The sold vehicle was
replaced with a new vehicle costing R360 000. The new vehicle was acquired and ready
for use on 1 October 2019.

SARS allows for a wear and tear allowance on vehicles at 25% per annum on the
straight-line method, with no apportionment.

12. Trade receivables are presented in the trail balance, after an allowance for credit losses
of R900 000 (2018: R400 000) have been provided for. SARS allows an annual
deduction of 25% on the allowance for credit losses. No provision was made for credit
losses in 2017.
13. On 31 December 2017 the balance of the income received in advance account was
R20 000.
14. No research cost was incurred prior to 2018. SARS allows for the deduction of research
costs incurred over 4 years, straight-line (no apportionment for a part of a year).
15. The tax rate has remained unchanged at 28% since 2017.
16. On 1 January 2018 the company had an assessed tax loss of R850 000.
17. Capital gains are taxed at an inclusion rate of 80%.
18. There were no items causing temporary or other differences other than those arising
from the information given.
YOU ARE REQUIRED TO:
1. Calculate the taxable income, current tax and deferred tax movement of Alfa Limited for the year
ended 31 December 2019 and 2018.
SHOW ALL CALCULATIONS. (17 Marks)

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2. Prepare and disclose the income tax expense and tax reconciliation note to the statement of profit
or loss and other comprehensive income of Alfa Limited for the year ended 31 December 2019,
with comparatives. You answer must comply with International Reporting Standards (IFRS).
COMPARATIVE FIGURES ARE REQUIRED. (5 Marks)
3. Prepare the revaluation surplus general ledger account of Alfa Limited, for the year ended
31 December 2019.
(3 Marks)

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