QUESTION 3

SPI Limited is a manufacturer of motor spare parts. The company has recently appointed a new managing director who has little accounting experience. You are the accountant and are currently finalising the financial records for the year ended 31 December 2020. The following information is available.

- The profit before tax of SPI Limited for the year ended 31 December 2020 amounted to R700 000 (2019: profit before tax of R585 000).

- Dividends that are not taxable amounted to R50 000 (2019: R40 000)

- Donations paid that are not tax deductible amounted to R15 000 (2019: R10 000).

- Penalties imposed by the Motor Bargaining council for late submission of required documents amount to R1 000 (non-deductible).

- Equipment is recovered through use. Depreciation on equipment of R110 000 in 2020. The tax authorities allowed a deduction of R80 000 for wear and tear on this equipment for the same year.

- Rent received in advance (taxable when received) -

o R6 500 31 December 2019

o R7 500 31 December 2020

- Insurance expense prepaid -

o R3 000 31 December 2019

o R6 000 31 December 2020

- A provision for leave pay of R50 000 was recorded on the 31 December 2020. The tax authority only allows this to be deducted when paid.

- Profit on sale of machinery of R150 000. The machine was acquired on 1 January 2018 at a cost of R600 000 and sold on the 31 December 2020. Depreciation is calculated at 25% with zero residual value. Wear & Tear is calculated at 20% pa on a straight-line basis.

- A state-of-the-art battery tester was purchased for R100 000 on the 2 January 2020. Depreciation of R10 000 relating to the current year was erroneously debited to Equipment: Cost account. The error was discovered during finalization of the accounts. Wear and tear of R4 000 was granted by the tax authority based on the correct cost.

- The normal income tax rate is 28%.

- The inclusion rate for capital gains tax is 40%.

- No other temporary differences in the year.

Required:

.1.1 Compute the current tax for the year ended 31 December 2020

1.2 The related journals to be processed in respect to tax and deferred tax for the year ending 31 December 2020

1.3

The disclosure of taxation to be included in the financial statements for the year ended 31 December 2020, in accordance with IFRS.

All workings must be shown. Include comparatives where applicable. Ignore any Value-Added Tax (VAT) implications. Round off all amounts to the nearest Rand

Your answer must comply with International Financial Reporting Standards (IFRS).