QUESTION 1 (SUGGESTED SOLUTION)
Part (a) Disclosures relating to tax
Calculation of normal tax payable
Profit before tax 5 545 937
Permanent differences
Amortisation of Other intangible assets 312 000 (1)
Foreign income (given) (650 000) (1)
Dividends received (given) (128 000) (1)
Depreciation on non-manufacturing assets 103 394 (1)
Depreciation on office building 32 242 (1)
5 215 573
Temporary differences (deductible) 4 669
Depreciation (PPE) (890 400 - 103 394 – 32 242) 754 764 (1)
Tax allowance (PPE)
Manufacturing building (1 376 700 x 5%) (68 835) (1)
Manufacturing plant 20x5: fully written off - (1)
Manufacturing plant 20x7: (880 700 x 20%) (176 140) (1)
Manufacturing plant 20x9: (1 341 800 x 40%) (536 720) (1)
Land (no allowance available) -
Non-manufacturing assets (no allowance available)
Intangible assets
Amortisation (given) 14 000 (1)
Tax allowance (280 000 x 10%) (28 000) (1)
Provision
Increase in provision added back 88 200 (1)
Increase in provision (prior year) (42 600) (1)
OR
Movement in provision (88 200 – 42 600) 45 600 (2)
Taxable income 5 220 242
Assessed loss brought forward (400 000) (1)
Tax on taxable income 4 820 242
Tax payable (4 820 242 x 28%) 1 349 668 (1)
Disclosures relating to tax
Tax expense
SA Normal tax
Current (consequential from part (a)) 1 349 668 (1C)
Deferred (4 669 x 28%) (Based on candidate’s calculation approach) (1 307) (1C)
Foreign taxes (given) 195 000 (1)
Assessed loss utilised (350 000 x 28%) 98 000 (1)
Change in tax rate ((448 991 – 101 500)/29%)(1) x (-1%)/(1)) (11 982)
Taxation expense for the year 1 629 379
Tax rate reconciliation
Taxation at the statutory rate of 28% (5 545 937 x 28%) 1 552 862 (1C)
Permanent differences:
Higher foreign tax rate (195 000 (1) – (650 000 x 28%) (1) 13 000 (1)
Dividend income (128 000 x 28%) (35 840) (1)
Depreciation on non-manufacturing assets (103 394 x 28%) 28 950 (1)
Depreciation on office building (32 242 x 28%) 9 028 (1)
Amortisation of intangibles (312 000 x 28%) 87 360 (1)
Changes In tax rate (11 982) (1C)
Unused assessed losses utilised (50 000 x 28%) (1) (14 000) (1P)
Effective tax rate / Taxation per profit and loss 1 629 379
Assets and liabilities method of calculation of deferred tax (statement of financial position)
Carrying Tax Temporary
amount base Difference
Property, plant and equipment
• Land 354 400 354 400 - (1)
OR Land 354 400 0 Exemption OR (1)
• Office buildings 406 800 406 800 - (1)
OR Office buildings 406 800 0 Exemption OR (1)
• Manufacturing buildings 873 500 868 395 5 105 (1)
• Manufacturing plant: 1 857 700 981 220 876 480 (2)
2005 (fully written off) - (½)
2007 (880 700 x 20%) 880 700 (½)
(704 560) (½)
2009 (1 341 800 x 40%) 1 341 800 (½)
(536 720)
• Non-manufacturing items 383 600 - (1)
OR Non-manufacturing items 383 600 OR (1)
383 600 Exemption
0
Goodwill 564 000 564 000 - (1)
OR Goodwill 564 000 0 Exemption OR (1)
Intangible assets
• Design Asset (280 000 x 70%) 205 000 196 000 9 000 (1)
• Other 389 000 389 000 - (1)
OR Other 389 000 0 Exemption OR (1)
Cash and cash equivalents 5 454 512 5 454 512 - (1)
Long-term liabilities(2 356 000+608 447) (2 964 447) (2 964 447) - (1)
Trade Payable (2 017 930) (2 017 930) - (1)
Other payables (186 200 - 88 200) (98 000) (98 000) - (1)
Provisions (88 200) 0 (88 200) (1)
802 385
#802 385 x 28%= 224 668 Deferred tax as per above note.
Categories of the deferred tax balance
Liability Asset Total
Capital allowance (PPE) 246 843 246 843 (1C)
(881 585 x 28%)
Capital allowance (Intangible assets) (1C)
(9 000 x 28%) 2 520 2 520
Provisions (88 200 x 28%) 24 696 (24 696) (1C)
Deferred tax liability 224 667
Total marks: (66)
Maximum marks: (60)
