Question 1: (57 marks: 85 minutes) Fresh Living Limited ('Fresh') is a distributor of natural and organic products produced in a socially sustainable manner. The Fresh head office is based in a prestigious office park from which it rents offices. The accountant is currently away on training and she admits to having very limited knowledge about the calculation and treatment of the company's tax calculations She has provided you with the following pre-adjustment trial balance and additional information of Fresh to assist staff in preparing the annual financial statements for the year ended 31 December 2018 Fresh Living Limited Pre-adjustment trial balance for the year ended 31 December 2018 R 6 718 750 1 000 000 Plant Investment in shares Inventory Accounts receivable Current tax payable Accounts payable Bank overdraft Ordinary share capital Retained earnings (1 January 2018) Loan payable Deferred taxation (1 January 2018) Revenue Dividend income (not taxable) Profit on sale of equipment Depreciation on equipment Donations made (Non-deductible for tax purposes) Finance charges (Deductible for tax purposes) Other expenses (Deductible for tax purposes) Dividends declared Revenue received in advance (Taxable when received) Rent expense prepaid (Deductible for taxation purposes when paid) 1 500 000 875 000 (132 500) (250 000) (617 500) (1 250 000) (2 000 000) (112 500) 777 (9 437 500) (31 250) ??? 312 500 15 000 343 750 3 891 250 62 500 (93 750) 187 500 Page 2 of 5 Additional information 1. Current taxation and deferred tax computations remain outstanding at 31 December 2018 2. Closing balances for accruals as at 31 December 2017 were as follows R Rent expense prepaid Revenue received in advance 125 000 31 250 3. An interim dividend was declared on 1 May 2018. R62 500 was paid out in respect of the interim dividend and the related dividend withholding tax. A final dividend of R125 000 was declared on 29 December 2018 and is payable on 20 January 2019. No journal entries have been processed in respect of the final dividend. 4. During the 2017 financial year, R687 500 was provided for as current income taxation The tax assessment for 2017 received during 2018 indicated a total assessed current income taxation of R750 000. No journal has been processed to account for the 2017 assessment received. The payment for the 2017 assessed tax remains outstanding at 31 December 2018. During the 2018 financial year. R555 000 of provisional tax payments were made and processed in respect of the 2018 tax year. There were no provisional tax payments made for the 2017 tax year. 5. A wear and tear allowance of R187 500 was granted on plant for tax purposes for the 2018 tax year. The tax base of the plant was R5 000 000 at 31 December 2018 6. An item of plant was sold during the 2018 year. Details of the sale are as follows: R Carrying amount at the date of sale Capital profit Non-capital profit Cost/Base cost Tax base 187 500 125 000 31 250 218 750 62 500 There was no movement in plant other than that which is evident from the information provided. . There are no other differences between accounting profit and taxable profit other than those evident from the information given The rate of income taxation is 30% (2017: 40%) and the inclusion rate is 80% for capital gains purposes for both the 2017 and 2018 years ended. Dividend tax is withheld at a rate of 20% Page 3 of 5 Question 1 (57 marks - 85 minutes) REQUIRED: Show and reference all workings Round off to the nearest rand. a) b) c) Marks Draft the entries in the accounting records of Fresh Living Limited, in journal form, to record all matters relating to dividends declared, current taxation and deferred taxation matters for the year ended 31 December 2018. Begin the current tax computation with the profit before tax" figure as it will appear in the profit or loss section of the Statement of Profit or loss and Other 34.5 Comprehensive income. Deferred taxation must be calculated using the balance sheet (carrying amount versus tax base) approach. Prepare the Statement of profit and loss and other comprehensive income of Fresh Living Limited for the year ended 31 December 2018 in terms of International Financial Reporting Standards. 5.0 Comparatives are not required. Prepare the Statement of changes in equity of Fresh Living Limited for the year ended 31 December 2018 in terms of International Financial Reporting Standards. 2.5 Comparatives are not required. Prepare only the equity and liabilities section of the Statement of financial position of Fresh Living Limited as at 31 December 2018 in terms of International Financial Reporting Standards. 6.0 Comparatives are not required. Prepare the following notes to the financial statements of Fresh living Limited for the year ended 31 December 2018 in terms of International Financial Reporting 9.0 Standards: Income taxation expense : Comparatives are not required Deferred taxation: Comparatives are required Total 57.0 d) Question 1: (57 marks: 85 minutes) Fresh Living Limited ('Fresh') is a distributor of natural and organic products produced in a socially sustainable manner. The Fresh head office is based in a prestigious office park from which it rents offices. The accountant is currently away on training and she admits to having very limited knowledge about the calculation and treatment of the company's tax calculations She has provided you with the following pre-adjustment trial balance and additional information of Fresh to assist staff in preparing the annual financial statements for the year ended 31 December 2018 Fresh Living Limited Pre-adjustment trial balance for the year ended 31 December 2018 R 6 718 750 1 000 000 Plant Investment in shares Inventory Accounts receivable Current tax payable Accounts payable Bank overdraft Ordinary share capital Retained earnings (1 January 2018) Loan payable Deferred taxation (1 January 2018) Revenue Dividend income (not taxable) Profit on sale of equipment Depreciation on equipment Donations made (Non-deductible for tax purposes) Finance charges (Deductible for tax purposes) Other expenses (Deductible for tax purposes) Dividends declared Revenue received in advance (Taxable when received) Rent expense prepaid (Deductible for taxation purposes when paid) 1 500 000 875 000 (132 500) (250 000) (617 500) (1 250 000) (2 000 000) (112 500) 777 (9 437 500) (31 250) ??? 312 500 15 000 343 750 3 891 250 62 500 (93 750) 187 500 Page 2 of 5 Additional information 1. Current taxation and deferred tax computations remain outstanding at 31 December 2018 2. Closing balances for accruals as at 31 December 2017 were as follows R Rent expense prepaid Revenue received in advance 125 000 31 250 3. An interim dividend was declared on 1 May 2018. R62 500 was paid out in respect of the interim dividend and the related dividend withholding tax. A final dividend of R125 000 was declared on 29 December 2018 and is payable on 20 January 2019. No journal entries have been processed in respect of the final dividend. 4. During the 2017 financial year, R687 500 was provided for as current income taxation The tax assessment for 2017 received during 2018 indicated a total assessed current income taxation of R750 000. No journal has been processed to account for the 2017 assessment received. The payment for the 2017 assessed tax remains outstanding at 31 December 2018. During the 2018 financial year. R555 000 of provisional tax payments were made and processed in respect of the 2018 tax year. There were no provisional tax payments made for the 2017 tax year. 5. A wear and tear allowance of R187 500 was granted on plant for tax purposes for the 2018 tax year. The tax base of the plant was R5 000 000 at 31 December 2018 6. An item of plant was sold during the 2018 year. Details of the sale are as follows: R Carrying amount at the date of sale Capital profit Non-capital profit Cost/Base cost Tax base 187 500 125 000 31 250 218 750 62 500 There was no movement in plant other than that which is evident from the information provided. . There are no other differences between accounting profit and taxable profit other than those evident from the information given The rate of income taxation is 30% (2017: 40%) and the inclusion rate is 80% for capital gains purposes for both the 2017 and 2018 years ended. Dividend tax is withheld at a rate of 20% Page 3 of 5 Question 1 (57 marks - 85 minutes) REQUIRED: Show and reference all workings Round off to the nearest rand. a) b) c) Marks Draft the entries in the accounting records of Fresh Living Limited, in journal form, to record all matters relating to dividends declared, current taxation and deferred taxation matters for the year ended 31 December 2018. Begin the current tax computation with the profit before tax" figure as it will appear in the profit or loss section of the Statement of Profit or loss and Other 34.5 Comprehensive income. Deferred taxation must be calculated using the balance sheet (carrying amount versus tax base) approach. Prepare the Statement of profit and loss and other comprehensive income of Fresh Living Limited for the year ended 31 December 2018 in terms of International Financial Reporting Standards. 5.0 Comparatives are not required. Prepare the Statement of changes in equity of Fresh Living Limited for the year ended 31 December 2018 in terms of International Financial Reporting Standards. 2.5 Comparatives are not required. Prepare only the equity and liabilities section of the Statement of financial position of Fresh Living Limited as at 31 December 2018 in terms of International Financial Reporting Standards. 6.0 Comparatives are not required. Prepare the following notes to the financial statements of Fresh living Limited for the year ended 31 December 2018 in terms of International Financial Reporting 9.0 Standards: Income taxation expense : Comparatives are not required Deferred taxation: Comparatives are required Total 57.0 d)