TAXATION IAS 12

Question Moments Limited – suggested solution

Calculations:
Machinery – Depreciation and carrying amount
Old R Sold Sold New Total R
R R R
30/6/2016 1 900 000 500 000 100 000 2 500 000
Depreciation (190 000) (50 000) (10 000) (250 000)
2016
31/12/2016 CA 1 710 000 450 000 90 000 2 250 000
Depreciation (380 000) (75 000) (20 000) (475 000)
2017
30/9/2017 CA (375 000) (375 000)
31/12/2017 Ca 0 (70 000) (70 000)
31/12/2017 CA 1 330 000 1 330 000
1/1/2018 Cost 150 000 150 000
Depreciation (380 000) (30 000) (410 000)
2018
31/12/2018 CA 950 000 0 0 120 000 1 070 000
2017: Profit on sale of asset R390 000 – R375 000 = R15 000
2017: Loss on sale of asset R10 000 – R70 000 = R60 000

Machinery – Wear and tear and tax base

Old R Sold Sold New Total R
R R R
30/6/2016 1 900 000 500 000 100 000 2 500 000
Wear and tear (475 000) (125 000) (25 000) (625 000)
2016
31/12/2016 TB 1 425 000 375 000 75 000 1 875 000
Wear and tear (475 000) (125 000) (25 000) (625 000)
2017
30/9/2017 TB (250 000) (250 000)
31/12/2017 TB 0 (50 000) (50 000)
31/12/2017 TB 950 000 950 000
1/1/2018 Cost 150 000 150 000
Depreciation (475 000) (37 500) (512 500)
2018
31/12/2018 TB 475 000 0 0 112 500 587 500
2017: Recoupment on sale of asset R390 000 – R250 000 = R140 000
2018: Scrapping allowance on sale of asset R10 000 – R50 000 = R40 000
Tax calculation
2018 2017
R R

Profit before taxation as stated 900 000 (5 000)

Temporary differences Depreciation (106 500) (8 500)
410 000 475 000
Wear and tear (512 500) (625 000)
Profit on disposal of machinery - (15 000)
Recoupment disposal of machinery - 140 000
Loss on disposal of machinery - 60 000
Scrapping allowance on disposal of machinery - (40 000)
Pre-paid insurance opening balance Pre- 45 000 40 000
paid insurance closing balance (52 000) (45 000)
Allowance for credit losses expense 4 000 2 000
Allowance for credit losses (1 000) (500)
Taxable income before assessed loss 793 500 (13 500)
Assessed loss (13 500)
Taxable income 780 000 (13 500)

Tax rate 28% 30%

Current tax 218 400 0
Not required
Deferred tax on temporary differences 29 820 2 550
Deferred tax on assessed loss 3 780 (4 050)
Total deferred tax 33 600 (1 500)

REQUIRED 2:

CA R TB R Temp diff R Def tax R

Not required no marks

allocated
31/12/2016
Machinery
2 250 000 1 875 000 375 000 112 500 Liability
Pre-paid expenses
40 000 0 40 000 12 000 Liability
Allowance for credit
losses
12 000 3 000 9 000 2 700 Asset
121 800 Liability

31/12/2017
Machinery 1 330 000 950 000 380 000 114 000 Liability
Pre-paid expense 45 000 0 45 000 13 500 Liability
Allowance for credit
losses 14 000 3 500 10 500 3 150 Asset
Assessed loss
0 13 500 13 500 4 050 Asset
120 300 Liability
1/1/2018
Rate change (8 020)
(2/30xR120 300)
Balance after rate 112 280 Liability
change
31/12/2018
Machinery 1 070 000 587 500 482 500 135 100 Liability
Pre-paid expense 52 000 0 52 000 14 560 Liability
Allowance for credit 0 3 780
losses Asset
18 000 4 500 13 500
145 880Liability
33 600 Movement
Rupert Ltd
Tax calculation
2019 2018
R R

Profit before taxation as stated 3 240 000 1 580 000

(29 000) (11 000)

Permanent differences
(25 000) ½ (14 000) ½
Dividends received
Penalties and fines 5 000 ½ 3 000 ½
Capital profit on sale - machinery (R475 000R450 (25 000) √ -
000)
Taxable capital gains (R475 000-R455 000)x80% 16 000 √ -
3 211 000 1 569 000
Temporary differences Depreciation (46 933) (22 816)
638 567 ½ 698 684 ½
Wear and tear – Buildings (R3 000 000x5%) (150 000) ½ (150 000) ½
Wear and tear – Machinery (R2 950 000x25%) (737 500) √ (737 500) √
Profit on disposal of machinery (R475 000-
R292 500-R25 000) (157 500) ½ -
Recoupment on machinery (R450 000(R450
000*1/4)
337 500 ½ -

Rental income in advance closing balance Rental 150 000 ½ 80 000 ½

income in advance opening balance (80 000) ½ (70 000) ½
Research cost expense - 180 000 √
Research cost allowance (R180 000/4) (45 000) √ (45 000) ½
Allowance for credit losses expense (4 000) ½ 28 000 ½
Allowance for credit losses 1 000 ½ (7 000) ½
Taxable income before assessed loss 3 164 067 1 546 184
Assessed loss - (650 000) √
Taxable income 3 164 067 896 184

Tax rate 28% 28%

Current tax (3 164 067x28%) 885 939 ½P
(896 184 x 28%) 250 932 ½P
Deferred tax (46 933x28%) 13 141 ½P
(22 816x28% on temporary differences) 6 388 ½P
(650 000x28% on assessed loss) 182 000 ½
Income tax expense 899 080 439 320
(19)
REQUIRED 2:

RUPERT LIMITED
EXTRACT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 June 2016

Normal tax
Current tax expense 250 932 ½P 885 939 ½P
Deferred tax Current
year 188 388 ½P 13 141 ½P

Tax rate reconciliation

2016 2015
R R
Profit before tax 3 240 000 1 580 000
Applicable tax rate 28% 28%
Tax at standard rate 907 200 442 400
Dividends received (7 000) ½ (3 920) ½
Penalties and fines 1 400 ½ 840 ½
Capital profit – machinery (7 000) ½ -
Taxable capital gains - machinery Income 4 480 ½ -
tax expense 899 080 439 320
Effective tax rate 27,75% ½P 27,81%