IAS 12.

4 A Ltd
Suggested Solution

a) Current tax 20.7 20.6

Rand Rand
Profit/ (loss) before tax 480 000 100 000
Temporary differences (119 350) (87 450)
Depreciation (W1) 119 750 86 250
Wear and tear (W1) (239 500) (172 500)
Allowance for credit losses - acc (W2) (1 000) (2 000)
Allowance for credit losses - tax prior year (W2) 3 200 4 000
Allowance for credit losses - tax current year (W2) (2 800) (3 200)
Rent recieved in advance 1 000 -
Taxable income / (assessed loss) 360 650 12 550
Tax loss brought foward (337 450) (350 000)
Taxable income / (assessed loss) 23 200 (337 450)
Current tax 6 264 -

Learning note: No adjustment was made for the factory building as the depreciation equalled the wear and tear
allowance.

b) Deferred tax Carrying Tax Temporary Def tax Def tax

amount base difference SFP P/L
20.5 (dr) / cr dr / (cr)
Factory building 883 200 883 200 - - -
Plant W1 690 000 517 500 172 500 46 575
Allowance for credit losses W2 (10 000) (4 000) (6 000) (1 620)
Tax loss - 350 000 (350 000) (94 500)
(183 500) (49 545)
Deferred tax asset not recognised 183 500 49 545
Balance - -
20.6
Factory building 864 800 864 800 - - -
Plant W1 603 750 345 000 258 750 69 863 23 288
Allowance for credit losses W2 (8 000) (3 200) (4 800) (1 296) 324
Tax loss - 337 450 (337 450) (91 112) 3 389
(83 500) (22 545) 27 000
Deferred tax asset not recognised - - (49 545)
Balance (83 500) (22 545) (22 545)
20.7
Factory building 846 400 846 400 - - -
Plant W1 819 000 440 500 378 500 102 195 32 333
Allowance for credit losses W2 (7 000) (2 800) (4 200) (1 134) 162
Tax loss - - - - 91 112
Rent received in advance (1 000) - (1 000) (270) (270)
Balance 373 300 100 791 123 336

c) Notes to the financial statements of A Ltd

Income tax expense 20.7 20.6
Rand Rand
SA Normal Taxation
Current 6 264 -
Deferred tax 123 336 (22 545)
Capital allowance - PPE 32 333 23 288
Allowance for credit losses 162 324
Rent received in advance (270) -
Tax loss 91 112 3 389
Previously unrecognised deferred tax asset
recognised in current year - (49 545)
129 600 (22 545)

1
 Tax rate reconciliation 20.7 20.6
Rand Rand
Accounting profit/ (loss) 480 000 100 000
Tax at the standard tax rate of 27% 129 600 27 000
Previously unrecognised tax loss recognised in current year - (49 545)
Tax expense #REF! 129 600 (22 545)

Deferred tax 20.7 20.6

Analysis of temporary differences Rand Rand
Capital allowance 102 195 69 863
Assessed loss - (91 112)
Rent received in advance (270) -
Allowance for credit losses (1 134) (1 296)
Deferred tax liability 100 791 (22 545)

Workings:
W1 Plant Accounting Tax
Rand Rand
Cost 862 500 862 500
Accumulated depreciation/ Wear and tear (862 500/10 x 2) (172 500) (345 000)
Carrying amount/ tax base 20.5 690 000 517 500
Depreciation 20.6 (862 500/10) (86 250) (172 500)
Carrying amount/ tax base 20.6 603 750 345 000
Purchases 335 000 335 000
Depreciation 20.7 (86 250 + 33 500) | (172 500 + 67 000) (119 750) (239 500)
Carrying amount/ tax base 20.7 819 000 440 500

W2 Allowance for credit losses Accounting Tax

Rand Rand
dr / (cr)
Allowance for credit losses (SFP) 20.5 (10 000) (4 000)
Allowance for credit losses (P/L) 2 000 800
Allowance for credit losses (SFP) 20.6 (8 000) (3 200)
Allowance for credit losses (P/L) 1 000 400
Allowance for credit losses (SFP) 20.7 (7 000) (2 800)