Below is an extract from the initial trial balance of Zamzam provided to the auditors for the financial year ended 31 December 2020 (FY2020), before any of the errors and omissions identified and noted below, were corrected and taken into consideration: General ledger account Balance Dr/ (Cr) 4000/000: Current tax expense (p/l) R420 651 4200/000: Deferred tax expense (p/l) R65 187 9100/000: SARS payable (SoFP) R420 651 9200/000: Deferred tax (SoFP) 31 December 2020 R54 160 5400/000: Revaluation surplus: Owner-occupied land (SoCE) 1 January 2020 (R117 500) 5500/000: Revaluation surplus: Owner-occupied land (OCI) (Before tax) R150 000 The only errors and omissions identified by the auditors (not yet correctly accounted for in the above balances) are listed below: Error 1: Incorrect depreciation expense on the office building The depreciation expense on the office building was incorrectly calculated as R67 000 instead of R77 000. Zamzam used R67 000 in the current tax calculation for the current financial year. The South African Revenue Service (SARS) does not allow any capital allowances on the office building. It is the intention of Zamzam to use the office building until the end of its useful life. Omission 1: Exclusion of current tax effect on exchange of assets Zamzam exchanged its old air conditioners for more technologically advanced air conditioners on 30 June 2020. The effect of both the old and new air conditioners were omitted from the current tax calculation for the current financial year. Details of the old and new air conditioners include the following: Old air conditioners Cost on 1 January 2019 (ready for and taken into use on this date; paid immediately in cash) R170 000 Fair value on 30 June 2020 R150 000 Useful life as of 1 January 2019 10 years New air conditioners Fair value on 30 June 2020 (ready for and taken into use on this date) R160 000 Useful life as of 30 June 2020 10 years. The residual values of both the old and new air conditioners were considered to be immaterial. The useful life and residual value estimates remained unchanged. The exchange transaction had commercial substance as defined in terms of IAS 16 Property, Plant and Equipment. The SARS allows a section 11(e) wear and- tear allowance over 15 years on both the old and new air conditioners; apportioned for periods shorter than a year. Zamzam has never had any intention to sell any of its air conditioners. The SARS deems the exchange transaction as if the old air conditioners were sold and the new air conditioners were obtained for the same consideration as would be recognised for accounting purposes in terms of IAS 16. Omission 2: Deposits received in the current financial year Zamzam receives deposits for large orders placed from new customers. The deposit is refundable on cancellation of the order, which results in control only passing when the order will be delivered. At the end of the current financial year, Zamzam received deposits to the value of R90 000 which were correctly classified as revenue received in advance. The effect of these deposits were however not taken into account in the current tax calculation for the current financial year. No such deposits were received at the end of the prior financial year. Omission 3: Exclusion of allowance for credit losses in the current financial year The SARS allows a section 11(j) deduction of 25% of the accounting allowance for credit losses each year. Zamzam did not recognise the doubtful debt as part of IFRS 9 Financial Instruments for the purposes of SARS. The effect of the allowance was correctly accounted for in the current financial years deferred tax calculation. However, the FY2020 current tax calculation does not include the effect of the allowance for credit losses. The allowance for credit losses of Zamzam amounted to the following at the respective dates: Description Amount Dr / (Cr) Balance on 31 December 2019 (R145 000) Balance on 31 December 2020 (R170 000) Other relevant information: 1. The correctly calculated accounting profit before tax, after correctly taking into account the above errors and omissions amounted to R1 950 000. This profit includes a net non-deductible permanent difference of R2 000. The latter consists of dividends received form a local listed company to the value of R10 000 and the remaining balance consists of other non-deductible expenses incurred during the current financial year. The latter items were correctly accounted for in the current year tax calculation. 2. The assessed loss for the financial year ended 31 December 2019 amounted to R360 000. 3. Zamzams board has always been of the opinion that the company will make taxable profits in the foreseeable future to utilise any unused tax losses. 4. Zamzam always utilises any tax deductions received from SARS in the year of assessment they are entitled to do so. 5. Assume that none of the identified errors and omissions affect any of the prior year balances. 6. Assume that all other information provided are correct and accurately accounted for to the extent that it is not affected by the errors and omissions noted. ZigZag provided an extract of the asset register as at the end of the current and prior financial year: ASSETS CARRYING AMOUNTS 31 December 2020 R 31 December 2019 R Land (1) 3 800 000 3 000 000 Office buildings (2) 1 900 000 1 370 000 Industrial buildings (3) 3 333 333 3 666 667 Machinery (4) 1 800 000 2 700 000 Additional information: 1. Land is vacant land and it is classified as investment property. The land was acquired on 1 April 2019 at R2 800 000. The fair value adjustments have been accounted for at the end of the respective financial years. 2. The office building was acquired on 1 July 2019 for R1 400 000 and was revalued for the first time on 31 December 2020 to its fair value of R1 900 000. The office buildings are depreciated on the straight line basis over 20 years to its residual value of R200 000. During 2019, management expected to use the asset up to the end of its economic life. On 1 January 2020, management estimated the remaining useful life of the building to have changed to 10 years and the residual value to be R500 000. In December 2020 the management changed the intention and decided they were going to sell the office building. Office buildings have no capital allowances available. 3. Industrial buildings are depreciated over 12 years on the straight line basis. In terms of the Income tax act, a section 13 allowance of 5% applies to the industrial buildings. The buildings were bought on 1 January 2019, with the intention to keep the building, for an amount of R4 000 000 paid in cash immediately with its residual value regarded as being insignificant. 4. Machinery is depreciated on a straight line basis at 20% per year to Rnil residual value. The SARS allows a section 12C allowance of 40%/20%/20%/20% on machinery. The machinery had a tax base of R1 800 000 on 31 December 2019 and R900 000 on 31 December 2020. No additional machinery was acquired during FY2020. 5. ZigZag always pays their insurance in advance. At the end of FY2020 the balance for insurance paid in advance amounted to R35 000 (2019: R25 000). 6. On 1 December 2020, Zamdela, a loyal customer, ordered transportation equipment from ZigZag which will be delivered to him during December 2021. ZigZag received R500 000 from Zamdela in cash when the order was placed. 7. The accounting profit before tax, which included dividends received of R40 000, amounted to R3 200 000 for the year ended 31 December 2020. All above mentioned movements were taken into account in arriving at this accounting profit. 8. The deferred tax asset balance as at 31 December 2019 was R390 150 due to an assessed loss of R2 200 000 that existed at that time. ZigZag expected to make sufficient taxable profits during 2020 and onwards to fully utilize assessed losses and other deductible temporary differences. Accounting policies and other information for both companies: Owner-occupied land is accounted for on the revaluation model and is revalued at the end of each financial year in terms of IAS 16. Office buildings are carried on the revaluation model using the net replacement method in terms of IAS 16. Machinery is measured on the cost model in terms of IAS 16. Industrial buildings are measured on the cost model in terms of IAS 16. In terms of IAS 8 Change in accounting policies, estimates and errors, changes in estimates are accounted for using the re-allocation method. All other items of property, plant and equipment are accounted for on the cost model in terms of IAS 16. Investment property is accounted for on the fair value model in terms of IAS 40 Investment Properties. Depreciation and amortisation are accounted for on the straight-line method. Assume a normal tax rate of 28% for FY2020 (2019: 27%) and that 80% of capital gains are taxable. There are no temporary differences other than those that are apparent from the given information.

Required: calculate deferred tax for the year ended 31 December 2020