QUESTION 3 (25 marks) a JETSMART is a retail store with branches in the Khomas region. The financial year end of the company is 31 December. The financial manager of JETSMART recently contacted A4E regarding incomplete records for current and deferred taxation that are due for submission. Therefore, A4E is currently busy finalising the current and deferred taxation calculations in order to process the transactions in the financial statements. No journal entries relating to the income tax calculations have been processed for the year ended 31 December 2020. The deferred tax asset of N$ 45 680 as at 31 December 2019 was correctly calculated. You have been provided with the following details: The head office of JETSMART in Windhoek consists of land and a building. The separate values of the land and the building are significant in relation to the total value of the property. The property was bought in cash on 1 June 2018 from its previous owner for an amount of N$900 000 relating to the land, whereas the cost of the building amounted to N$3 500 000 on the same day. The head office was ready for use on this date, but was only occupied on 1 July 2018. The building has a total useful life of 25 years from purchase date. The residual value of the building is N$500 000. The initial useful life and residual value estimate have remained unchanged to date. NAMRA does not allow any capital allowances/wear and tear allowances on the building. JETSMART purchased a delivery truck on 1 September 2020 for N$850 000 to ensure internal deliveries run smoothly. 60% of the purchase price is to be paid within 24 months after the date of purchase and the remaining balance was paid in cash immediately. An applicable before tax discount rate is 10% per annum. 340 0oo.cr deffered expense - slo ooo dr Bank 85ooo 85000 Cout Depreciation is provided over a period of five years on a straight-line basis to an insignificant residual value for all delivery vehicles. NAMRA allows wear and tear allowance of 25% per annum; apportioned for periods shorter than a year. On 28 December 2020 JETSMART was served with a penalty charge of N$ 10 000 payable to the Windhoek police department as the driver was charged with reckless the company in January, while the driver will face her disciplinary hearing. driving and not abiding with COVID 19 health requirements. The penalty will be paid by JETSMART purchased a patent on 1 December 2019 at a cost of N$ 1 250 000. The useful life of the patent is estimated as 11 years. However, the legal life of the patent is seven years and the legal life can be extended by cost. NAMRA allows a deduction of 5% per annum on the cost of the patent calculated on the straight-line basis and not apportioned for periods shorter than a year. a further five years at an insignificant Accounts receivable amounted to N$ 280 000 (2019: N$ 250 000) after taking into account an allowance for credit losses of N$ 70 000. There was no allowance for credit losses in the prior year. NAMRA allows 25% of the allowance for credit losses as a deduction for tax purposes in terms of the Income Tax Act. On 31 December 2020, prepaid expenses amounted to N$ 50 000. The prepayment related to the COVID 19 Personal Protective Clothing (PPE) for staff members that was ordered from a supplier on 28 December 2019. It will only be delivered in February 2021 due to a backlog faced by the supplier. There were no prepayments made at the end of the 2019 financial year. NAMRA allowed the prepaid expense as a deduction when it was paid. Vodec Ltd Vodec Ltd ('Vodec') is a well-known cell phone company in Namibia with branches in each region. Vodec is also known for the best and fastest network connection. The current financial year end of the company is 31 December 2020. 9 The financial manager correctly calculated the Profit before tax as N$ 32 000 000 for the 2020 financial year. The financial accountant started to calculate the taxable income for the 2020 financial year and came to an amount of R25 760 000, but he has not yet taken into account the following as he was unsure of the correct treatment: - The residents of Walvis Bay looted shops in the whole region and on the 30 July 2020 one of Vodec's newly built administration building was burnt down. This was before the the insurance contract was finalised. Therefore, no claim could be initiated building, and nothing could be recovered as the fire destroyed everything. Luckily the building was only completed and available for use on 1 May 2020 and not yet occupied by 30 July 2020, therefore human lives were spared. -The total original cost of this building on 1 May 2020 was N$ 900 000, land was considered to have an insignificant value. The building was considered on this date, to have a useful life of 30 years with a R100 000 residual value. NAMRA allows a deduction of 5% per year on the building, from the date it is taken into use. NAMRA did not allow a scrapping allowance on this building. - The deferred tax balance liability on 31 December 2020 amounted to N$ 7 900 (2019: deferred tax asset of N$ 19 547). Accounting policies and additional information applicable to all three clients of A4E All clients account for items of property, plant and equipment on the cost model in terms of IAS 16 Property, Plant and Equipment. Depreciation is measured on a straight- line method over the useful life of the asset to its respective residual values. It has always been the intention of all the clients of A4E to recover the carrying amount of all assets through the use thereof. There are no temporary differences other than those that are apparent from the given information The current tax rate is 32% for all financial years under consideration . 10 Required: (a) Prepare the journal entry required to account for the movement in the deferred tax balances of JETSMART for the year ended 31 December 2020. Use the statement of financial position approach to show your calculations. Include each asset and liability in your deferred tax calculation and indicate for each temporary difference whether it results in a deferred tax asset or liability. Journal narrations are not required. b) Prepare an extract of the statement of profit or loss and other comprehensive income of Vodec for the year ended 31 December 2020. Start your extract with the 'Profit before tax' line item. Comparatives are not required. QUESTION 3 (25 marks) a JETSMART is a retail store with branches in the Khomas region. The financial year end of the company is 31 December. The financial manager of JETSMART recently contacted A4E regarding incomplete records for current and deferred taxation that are due for submission. Therefore, A4E is currently busy finalising the current and deferred taxation calculations in order to process the transactions in the financial statements. No journal entries relating to the income tax calculations have been processed for the year ended 31 December 2020. The deferred tax asset of N$ 45 680 as at 31 December 2019 was correctly calculated. You have been provided with the following details: The head office of JETSMART in Windhoek consists of land and a building. The separate values of the land and the building are significant in relation to the total value of the property. The property was bought in cash on 1 June 2018 from its previous owner for an amount of N$900 000 relating to the land, whereas the cost of the building amounted to N$3 500 000 on the same day. The head office was ready for use on this date, but was only occupied on 1 July 2018. The building has a total useful life of 25 years from purchase date. The residual value of the building is N$500 000. The initial useful life and residual value estimate have remained unchanged to date. NAMRA does not allow any capital allowances/wear and tear allowances on the building. JETSMART purchased a delivery truck on 1 September 2020 for N$850 000 to ensure internal deliveries run smoothly. 60% of the purchase price is to be paid within 24 months after the date of purchase and the remaining balance was paid in cash immediately. An applicable before tax discount rate is 10% per annum. 340 0oo.cr deffered expense - slo ooo dr Bank 85ooo 85000 Cout Depreciation is provided over a period of five years on a straight-line basis to an insignificant residual value for all delivery vehicles. NAMRA allows wear and tear allowance of 25% per annum; apportioned for periods shorter than a year. On 28 December 2020 JETSMART was served with a penalty charge of N$ 10 000 payable to the Windhoek police department as the driver was charged with reckless the company in January, while the driver will face her disciplinary hearing. driving and not abiding with COVID 19 health requirements. The penalty will be paid by JETSMART purchased a patent on 1 December 2019 at a cost of N$ 1 250 000. The useful life of the patent is estimated as 11 years. However, the legal life of the patent is seven years and the legal life can be extended by cost. NAMRA allows a deduction of 5% per annum on the cost of the patent calculated on the straight-line basis and not apportioned for periods shorter than a year. a further five years at an insignificant Accounts receivable amounted to N$ 280 000 (2019: N$ 250 000) after taking into account an allowance for credit losses of N$ 70 000. There was no allowance for credit losses in the prior year. NAMRA allows 25% of the allowance for credit losses as a deduction for tax purposes in terms of the Income Tax Act. On 31 December 2020, prepaid expenses amounted to N$ 50 000. The prepayment related to the COVID 19 Personal Protective Clothing (PPE) for staff members that was ordered from a supplier on 28 December 2019. It will only be delivered in February 2021 due to a backlog faced by the supplier. There were no prepayments made at the end of the 2019 financial year. NAMRA allowed the prepaid expense as a deduction when it was paid. Vodec Ltd Vodec Ltd ('Vodec') is a well-known cell phone company in Namibia with branches in each region. Vodec is also known for the best and fastest network connection. The current financial year end of the company is 31 December 2020. 9 The financial manager correctly calculated the Profit before tax as N$ 32 000 000 for the 2020 financial year. The financial accountant started to calculate the taxable income for the 2020 financial year and came to an amount of R25 760 000, but he has not yet taken into account the following as he was unsure of the correct treatment: - The residents of Walvis Bay looted shops in the whole region and on the 30 July 2020 one of Vodec's newly built administration building was burnt down. This was before the the insurance contract was finalised. Therefore, no claim could be initiated building, and nothing could be recovered as the fire destroyed everything. Luckily the building was only completed and available for use on 1 May 2020 and not yet occupied by 30 July 2020, therefore human lives were spared. -The total original cost of this building on 1 May 2020 was N$ 900 000, land was considered to have an insignificant value. The building was considered on this date, to have a useful life of 30 years with a R100 000 residual value. NAMRA allows a deduction of 5% per year on the building, from the date it is taken into use. NAMRA did not allow a scrapping allowance on this building. - The deferred tax balance liability on 31 December 2020 amounted to N$ 7 900 (2019: deferred tax asset of N$ 19 547). Accounting policies and additional information applicable to all three clients of A4E All clients account for items of property, plant and equipment on the cost model in terms of IAS 16 Property, Plant and Equipment. Depreciation is measured on a straight- line method over the useful life of the asset to its respective residual values. It has always been the intention of all the clients of A4E to recover the carrying amount of all assets through the use thereof. There are no temporary differences other than those that are apparent from the given information The current tax rate is 32% for all financial years under consideration . 10 Required: (a) Prepare the journal entry required to account for the movement in the deferred tax balances of JETSMART for the year ended 31 December 2020. Use the statement of financial position approach to show your calculations. Include each asset and liability in your deferred tax calculation and indicate for each temporary difference whether it results in a deferred tax asset or liability. Journal narrations are not required. b) Prepare an extract of the statement of profit or loss and other comprehensive income of Vodec for the year ended 31 December 2020. Start your extract with the 'Profit before tax' line item. Comparatives are not required