QUESTION 2 [30 MARKS] Vambo Limited is a manufacturing company listed on the Namibia Stock Exchange. The carrying amounts of tangible assets of the company were as follows: 31 December 31 December 2021 2020 N$ N$ Land (Note 1) 4 500 000 4 000 000 Office buildings (Note 2) 1 800 000 1 472 000 Industrial buildings (Note 3) 3 520 000 3 840 000 Machinery (Note 4) 1 950 000 2 900 000 Additional information: 1. Land is vacant and is classified as investment property and accounted for on the fair value model in accordance with IAS 40 Investment Property. The land was acquired on 1 June 2020 at N$3 500 000. The fair value adjustments were recorded at the respective year-ends. Page 15 of 27 2. Office buildings are carried on the revaluation model. It was revalued for the first time on 31 December 2021 to its fair value of N$1 800 000. The office buildings were acquired on 1 July 2020 at N$1 500 000 and are depreciated on the straight-line basis over 25 years to the residual value of N$100 000. In 2020 management expected to use the asset up to the end of its economic life. In 2021 the estimated useful life changed to 5 years (applied prospectively as from 2 January 2021) and the residual value to N$400 000 (change in estimate also applied prospectively as from 2 January 2021). The company uses the re-allocation method to account for changes in estimates. However, December 2021 management changed their intention and decided to sell the building. No capital allowances are available for office buildings. Ignore IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations. 3. Industrial buildings are measured using the cost model and are depreciated on the straight-line basis over 15 years. An allowance of 5% applies to the industrial buildings in terms of the Income Tax Act. These buildings were bought on 1 January 2018 for an amount of N$4 800 000. The residual value was and is estimated to be N$nil. No further buildings have been acquired since then. 4. The machinery is carried at the cost model. The Wear and tear allowance of 33 1/3% applies to plant and machinery in terms of the Income Tax Act. Plant and machinery are depreciated on the straight-line basis at 20% per year to N$nil residual value. The tax base of the remaining machinery amounted to N$950 000 at 31 December 2021. The tax base was N$1 900 000 on 31 December 2020. No additional machinery was acquired in 2021. 5. Other Statement of financial position items: 31 December 2021 31 December 2020 Prepaid insurance N$32 000 N$23 000 6. The accounting profit before tax, which included dividends received of N$45 000, amounted to N$3 175 000 for the year ended 31 December 2021. All above mentioned depreciation, amortisation and movements in statement of financial position items were taken in account in arriving at the accounting profit. 7. The deferred taxation asset balance as at 31 December 2020 was N$328 950 due to an assessed loss of N$2 million that existed at the time. Vambo expected to make sufficient taxable profits in 2021 and onwards to fully utilise assessed losses and other deductible temporary differences. 8. Assume a normal tax rate of 28% for the 2021 year (2020 year: 27%) and that 0% (2021) and (2020 year: 0%) of capital gains are taxable. = Marks REQUIRED: Prepare the INCOME TAX EXPENSE note in the financial statements of Vambo Ltd for the year ended 31 December 2021 in compliance with International Financial Reporting Standards. Presentation and disclosure of comparative amounts are not required. Page 16 of 27 30 FACULTY OF COMMERCE, MANAGEMENT AND LAW Calculation of deferred tax amounts must be shown on the statement of financial position method. TOTAL MARKS 30 QUESTION 2 [30 MARKS] Vambo Limited is a manufacturing company listed on the Namibia Stock Exchange. The carrying amounts of tangible assets of the company were as follows: 31 December 31 December 2021 2020 N$ N$ Land (Note 1) 4 500 000 4 000 000 Office buildings (Note 2) 1 800 000 1 472 000 Industrial buildings (Note 3) 3 520 000 3 840 000 Machinery (Note 4) 1 950 000 2 900 000 Additional information: 1. Land is vacant and is classified as investment property and accounted for on the fair value model in accordance with IAS 40 Investment Property. The land was acquired on 1 June 2020 at N$3 500 000. The fair value adjustments were recorded at the respective year-ends. Page 15 of 27 2. Office buildings are carried on the revaluation model. It was revalued for the first time on 31 December 2021 to its fair value of N$1 800 000. The office buildings were acquired on 1 July 2020 at N$1 500 000 and are depreciated on the straight-line basis over 25 years to the residual value of N$100 000. In 2020 management expected to use the asset up to the end of its economic life. In 2021 the estimated useful life changed to 5 years (applied prospectively as from 2 January 2021) and the residual value to N$400 000 (change in estimate also applied prospectively as from 2 January 2021). The company uses the re-allocation method to account for changes in estimates. However, December 2021 management changed their intention and decided to sell the building. No capital allowances are available for office buildings. Ignore IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations. 3. Industrial buildings are measured using the cost model and are depreciated on the straight-line basis over 15 years. An allowance of 5% applies to the industrial buildings in terms of the Income Tax Act. These buildings were bought on 1 January 2018 for an amount of N$4 800 000. The residual value was and is estimated to be N$nil. No further buildings have been acquired since then. 4. The machinery is carried at the cost model. The Wear and tear allowance of 33 1/3% applies to plant and machinery in terms of the Income Tax Act. Plant and machinery are depreciated on the straight-line basis at 20% per year to N$nil residual value. The tax base of the remaining machinery amounted to N$950 000 at 31 December 2021. The tax base was N$1 900 000 on 31 December 2020. No additional machinery was acquired in 2021. 5. Other Statement of financial position items: 31 December 2021 31 December 2020 Prepaid insurance N$32 000 N$23 000 6. The accounting profit before tax, which included dividends received of N$45 000, amounted to N$3 175 000 for the year ended 31 December 2021. All above mentioned depreciation, amortisation and movements in statement of financial position items were taken in account in arriving at the accounting profit. 7. The deferred taxation asset balance as at 31 December 2020 was N$328 950 due to an assessed loss of N$2 million that existed at the time. Vambo expected to make sufficient taxable profits in 2021 and onwards to fully utilise assessed losses and other deductible temporary differences. 8. Assume a normal tax rate of 28% for the 2021 year (2020 year: 27%) and that 0% (2021) and (2020 year: 0%) of capital gains are taxable. = Marks REQUIRED: Prepare the INCOME TAX EXPENSE note in the financial statements of Vambo Ltd for the year ended 31 December 2021 in compliance with International Financial Reporting Standards. Presentation and disclosure of comparative amounts are not required. Page 16 of 27 30 FACULTY OF COMMERCE, MANAGEMENT AND LAW Calculation of deferred tax amounts must be shown on the statement of financial position method. TOTAL MARKS 30