Question 4

Easy Peasy Lemon Squeezy (Pty) Ltd (hereafter EPLS) are trading in the production of homemade lemonade. The company has a 31 December year end. The accounting profit before tax for the financial year ended 31 December 2018 is N$500 000. Included in the accounting profit before tax are dividends received of N$10 000 and a penalty of N$15 000 for the late submission of VAT returns. EPLS raised a provision for current tax payable of N$121 000 for the financial year ended 31 December 2017. EPLS realized that they had under-provided for current tax in the previous year when the final assessment issued by the Tax authorities on 30 April 2018 (relating to FY 2017), reflected income tax payable of N$126 000.

The company acquired a new bottling machine on 1 July 2017 for N$300 000 which has a four year useful life and a nil residual value. In terms of the Income Tax Act, an allowance of 40% is granted in the first year, with 20% granted per year for the subsequent three years, not apportioned for part of a year.

A local school placed a bulk order with EPLS (Pty) Ltd for the supply of lemonade for their watermelon festival held as part of the school re-opening events scheduled for the second week of January 2019. Due to the school administrator going on extended leave, she decided to pay the full amount of N$21 000 on placement of the order. EPLS agreed to deliver the lemonade one day before the scheduled event in January 2019.

The current tax rate is 28% (2017: 28%).

Required:

a) Calculate the Current tax payable of EPLS (Pty) Ltd as at 31 December 2018

b) Prepare the tax rate reconciliation of EPLS (Pty) Ltd for 31 December 2018. You only need to reconcile the amounts. Do not prepare the reconciliation in percentages (%s).