QUESTION 3 (25 marks) You have just been appointed as the financial accountant at Nakwarta Ltd ('Nakwarta') for the 2020 year of assessment Management requires you to assist them with the income tax calculations and has provided you with the following information: Nakwarta Ltd Extract from the statement of financial position as at 31 December 2020. Notes N$ 2020 Dr(Cr) Property, plant and equipment 1,2 1 085 000 Trade debtors 3 495 000 Allowance for credit losses 4 ?? Cash and cash equivalents 995 000 Share capital (1 500 000 Retained earnings (2 700 000) Trade creditors 5 (325 000) Deferred tax ?? 5 Notes Nakwarta Ltd Statement of profit or loss and other comprehensive income for the year ended 31 December 2020. N$ 2020 Sales 7 000 000 Cost of Sales (4 750 000) Gross profit 2 250 000 1 Other income and expenses Profit with sale of machine Dividend income Interest received Fine paid Research costs Other expenses 550 000 50 000 75 000 (60 000) (250 000) (465 000) 6 Profit before tax 2 150 000 8 Notes: 1 Nakwarta sold a machine on 1 August 2020 for N$ 1 225 000. The cost price as well as the base cost of the machine was NS 1 000 000 and the initial purchase date was 1 May 2017. Nakwarta depreciates machinery over a period of 10 years to a N$ nil residual value. The NAMRA allows a wear and tear allowance of 20% per year, not proportioned for a part of the year. 2. Nakwarta bought a building on 1 January 2014 with a cost price of N$1 550 000 and an estimated useful life of 20 years. The building has a negligible residual value. NAMRA allows an allowance of 5% per year for these types of buildings, not proportioned for a part of the year. 3 Included in the trade debtors line item is prepaid expenses of N$100 000. All these expenses relate to January 2021 only. 4. In the previous year, Nakwarta's clients started paying late and some didn't pay their accounts at all, and thus Nakwarta was forced to recognise an allowance for credit losses. After taking into account all relevant information and considering all debtors, the allowance for credit losses for the 2019 financial year end was estimated to be N$ 37 500 and for the 2020 financial year end, N$ 59 250. The balance of the debtors at the end of the 2019 financial year was N$ 250 000 Assume the NAMRA allows a deduction of 25% of the accounting allowance. 5. Included in the trade creditors are accrued expenses of N$ 50 000 6. Research costs (correctly treated as expense in above statement) were incurred to identify new technological developments in the market. Assume that the NAMRA grants a deduction for research costs over a period of 4 years. 7 The closing balance of deferred tax for the 2019 financial year was correctly calculated as N$ 85 458 (credit SFP balance). Accounting policy - Property, plant and equipment are carried under the cost model -Applicable tax rate is 32% Required (a) Calculate the income tax payable for the year ended 31 December 2020 (15) (b) Calculate the deferred tax balance and movement for Nakwata for the yea ended 31 December 2020. Make use of the statement of financial position approach. Prepare the journal entry to account for the movement in deferred ta balance (10) 10