IAS 12 – Class exercise: Memo

Question 1 CRAX Limited(25 Marks)

REQUIRED 1:

Tax calculation
2021 2020
R R

Profit before taxation as stated 250 000 140 000

Permanent differences (35 391) (29 727)

Penalties paid to SARS 7 200 ½ -
Dividends received (105 000) ½ (92 000)
Depreciation on buildings 65 409 ½ 62 273
Capital profit on disposal of manufacturing (15 000) ½ -
equipment -
Taxable capital gain (R15 000 x 80%) 12 000 ½
214 609 110 273
Temporary differences (293 317) (47 750)
Depreciation 726 933 √P 540 000 √P
Wear and tear (1 291 750) √P (600 000) √P
Profit on disposal of manufacturing equipment (40 000) ½ -
Recoupment 50 000 ½ -
Profit on disposal of computer equipment (50 000) ½
Recoupment 200 000 ½
Research expense 125 000 ½
Research cost (R125 000 / 4) (31 250) ½
Allowance for credit losses expense 1 000 ½ 3 000 ½
Allowance for credit losses (250) ½ (750) ½
Provision for leave pay 12 000 ½ -
Income received in advance – Closing balance (10 000) ½ 10 000 ½
 Income received in advance – closing balance 15 000 ½ -
(Tax loss) / Taxable income before assessed loss (78 708) 62 523
Assessed loss brought forward - (50 000)
(Tax loss) / Taxable income for the year (78 708) 12 523

Tax rate 28% 28%

Current tax
(12 523 x 28%) 0½ 3 506 ½P
Deferred tax
(293 317 x 28% on temporary differences) 82 129½P
(78 708 x 28% on assessed loss) (22 038) ½P
(47 750 x 28% on temporary differences) 13 370 ½P
(50 000 x 28% on assessed loss) 14 000
Income tax expense 60 091 30 877
(16)

REQUIRED 2:

CRAX LIMITED
EXTRACT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 FEBRUARY 2021

4. INCOME TAX EXPENSE

2021 2020
R R
Major components of tax expense

Current tax expense – current year 0 3 506 ½P

Deferred tax 60 091

- Current year 60 091 ½P 27 370 ½P
 60 091 30 877
(3.5)

Tax rate reconciliation

2021 2021
R R
Accounting profit 250 000 140 000

Applicable tax rate 28% 28%

Tax at standard rate 70 000 39 200

Tax effect of:

Penalties paid to SARS 2 016 -
Dividends received (29 400) (25 760)
Depreciation on buildings 18 315 17 436
Capital profit on disposal of manufacturing equipment (4 200)
Taxable capital gain 3 360
Income tax expense 60 091 √ 30 877 √
Effective tax rate 24.04% 22 05.%
(2)
REQUIRED 3:

CRAX LIMITED
EXTRACT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 FEBRUARY 2021

6. PROPERTY, PLANT AND EQUIPMENT

Land Buildings Manufacturing Vehicles Computer Total

equipment R equipment R
R R R R
Carrying amount at 920 000 √ 1 183 178√ 960 000 √ - 600 000 3 663 178
beginning of year
Gross carrying amount 920 000 1 380 000½ 1 200 000 ½ - 900 000 ½ 4 400 000
(at cost / revaluation)
Accumulated - (196 822) (240 000) - (300 000) ½ (736 822)
depreciation
Depreciation - (65 409) √P (257 333) √P (119 600) √P (350 000) √ (792 342)
Derecognition - - (60 000) √P - (450 000) √ (510 000)
Additions - 250 000½ 520 000 √ 647 000 √ 1 200 000 ½ 2 617 000
Carrying amount at end 920 000 1 367 769 1 162 667 527 400 1 000 000 4 977 836
of year
Gross carrying amount 920 000 1 630 000√P 1 620 000 √P 647 000 ½P 1 200 000 ½P 6 017 000
(at valuation / cost)
Accumulated - (262 231) √P (457 333) √P (119 600) ½P (200 000) ½P (1 039 164)
depreciation
(20)
CALCULATIONS

Land and buildings

New Total
Land Buildings building buildings
R R R R
Cost 1/3/2017
R2 300 00 x 40% 920 000
R2 300 00 x 60% 1 380 000
Depreciation 2018 69 000
1 311 000
Depreciation 2019 65 550
1 245 450
Depreciation 2020 62 273
Carrying amount 28/2/2020 1 183 178
Cost 31/8/2020 250 000
Depreciation 2021 59 159½ 6 250½ 65 409
Carrying amount 28/2/2021 920 000 1 124 019 243 750 1 367 769

Manufacturing equipment

Accounting Tax
Kept Sold New Total Kept Sold New Total
R R R R R R R R
Cost 1/3/2019 1 100 000 100 000 1 200 000 1 100 000 100 000 1 200 000
Depreciation / wear & tear
2020 220 000 20 000 240 000 275 000 25 000 300 000½
Carrying amount / tax base
2020 880 000 80 000 960 000 825 000 75 000 900 000
Cost 2/1/2021 520 000 520 000 520 000 520 000
Depreciation / wear & tear
2021 220 000 20 000½ 17 333½ 257 333 275 000 25 000 130 000 430 000½
Carrying amount/ tax base
28/2/2021 660 000 60 000½ 502 667 1 222 667 550 000 50 000 390 000 990 000
Sold -60 000 -60 000 -50 000½ -50 000
660 000 0 502 667 1 162 667 550 000 0 390 000 940 000
Profit on disposal
R115 000 – R60 000 = R55 000
Capital profit = R15 000
Non capital profit R55 000 –
R15 000 = R40 000
Recoupment
R100 000 – R50 000 = R50 000

Vehicles

Accounting Tax
Kept Sold New Total Kept Sold New Total
R R R R R R R R
Cost 1/3/2020 500 000 500 000 500 000 500 000
Cost 1/7/2020 147 000 147 000 147 000 147 000
Depreciation / wear & tear 100 000½ 19 600½ 119 600 125 000 36 750 161 750½
Carrying amount/ tax base
28/2/2021 400 000 127 400 527 400 375 000 110 250 485 250

Computer equipment

Accounting Tax
Kept Sold New Total Kept Sold New Total
 R R R R R R R R
Cost 1/3/2019 900 000 900 000 900 000 900 000
Depreciation / wear & tear
2020 300 000 300 000 300 000 300 000½
Carrying amount/ tax base
28/2/2020 600 000 600 000 600 000 600 000
Cost 31/8/2020 1 200 000 1 200 000 1 200 000 1 200 000
Depreciation / wear & tear
2021 150 000½ 200 000½ 350 000 300 000 400 000 700 000½
450 000 1 000 000 1 450 000 300 000 800 000 1 100 000
Sold -450 000½ -450 000 -300 000½ -300 000
Carrying amount/ tax base
28/2/2021 0 1 000 000 1 000 000 0 800 000 800 000
Profit on disposal
R500 000 – R450 000 = R50 000
Recoupment R500 000 – R300 000 = R200 000

Accounting calculations = 5 marks

Tax calculations = 3.5
Calculation of deferred tax account balance:

Date Description CA TB Temp diff Def tax balance Def tax movement
R R R R R
28/2/2020 Manufacturing equipment 960 000 900 000 60 000 16 800 liability
Vehicles 0 0 0 0
Computer equipment 600 000 600 000 0 0
Allowance for credit losses 3 000 750 2 250 630 asset
Income received in advance 10 000 0 10 000 2 800 asset
13 370 liability
Credit deferred tax
liability with
R60 091 and debit
income tax
expense
28/2/2021 Manufacturing equipment 1 162 667 940 000 222 667 62 347 Liability
Vehicles 527 400 485 250 42 150 11 802 Liability
Computer equipment 1 000 000 800 000 200 000 56 000 Liability
Allowance for credit losses 4 000 1 000 3 000 840 asset
Income received in advance 15 000 0 15 000 4 200 asset
Research costs 0 93 750 93 750 26 250 asset
Provision for leave pay 12 000 0 12 000 3 360 asset
Assessed loss 0 78 708 78 708 22 038 asset
73 461 liability