Question 2 (70 marks: 126 minutes)

TSHEDZA LTD is a company based in the Gauteng province. The end of reporting date of TSHEDZA LTD is 31 December. TSHEDZA LTD is listed on the JSE LTD and complies fully with IFRS.

The following information relates to the 2021 reporting period and has been presented to you for your attention:

Receipt from customer

On 1 December 2021, TSHEDZA LTD entered a contract with RONEWA LTD for delivery and installation of a production assembly line. The contract stipulates that TSHEDZA LTD will deliver the assembly line on 27 December 2021 and do the installation on 30 December 2021. The contract price is R 16 000 000. TSHEDZA normally does installations of assembly lines purchased elsewhere for R 1 875 000 and sells production assembly lines of the same size without installation for R 13 505 000.

On 31 December 2021, Tshedza LTD had only managed to deliver the assembly line to Rowena LTDs premises. RONEWA LTD paid the full R 16 000 000 on 31 December 2021 via EFT. SARS fully taxes income at the early or receipt or accrual.

Office equipment

Office equipment with the cost of R 3 500 000 on 1 July 2020 is depreciated over 5 years on a straight-line method to nil residual value. The tax authorities allow wear and tear on the office equipment over 3 yearsapportioned for part of the year.

Motor vehicles

Motor vehicles were purchased on 1 December 2020 at a cost of R 6 400 000. The depreciation is over 5 years on a straight-line method to no residual value.

Tax authorities capital allowances:

Year 1 50%

Year 2 30%

Year 3 20%

Production plant

On 27 March 2020, TSHEDZA LTD purchased a production plant at a cost of R 17 500 000. The plant was installed on the same day for R 75 000. The production plant was certified as ready and available for use on 31 March 2020. TSHEDZA estimates that in will incur a cost of R 250 000 at the end of the plants useful life for dismantling and removal. The estimated useful life of the is 10 years and depreciation is on the straight-line basis to nil residual value.

Dividends received

A dividend income of R 150 000 was received from a local company in which TSHEDZA LTD holds an investment. The withholding dividends taxes were correctly accounted from the investees side.

Additional information

1. The tax rate applicable for the year ended 2020 is 28%.

2. No other differences between accounting and tax treatment other than those evident.

3. Assume 10% to be a fair discounting rate where appropriate.

Required

1. With reference to the contract between Tshedza LTD and Rowena LTD discuss the performance obligations	5 marks
2. With reference to the contract between Tshedza LTD and Rowena LTD allocate the transaction price to the identified performance obligations and state the amount of revenue to be recognized in the 2021 reporting period	10 marks
3. Calculate the deferred tax balance to be presented in the financial statements of TSHEDZA LTD for the 2020 reporting period using the balance sheet approach. State whether its an asset or a liability.	35 marks
4. Using the above information and assuming a profit before tax of R 23 547 764 calculate the taxation expense for Tshedza LTD for the reporting period ended 31 December 2021