QUESTION ONE

$35$

You have recently been appointed as the new financial director at Trucks Limited. Trucks Limited is a manufacturer of spare parts for trucks. The senior accountant has approached you to review his tax calculations as he is finalising the financial records for the year ended $31$ December $2023.$ The following information has been presented to you;

The profit before tax of Trucks Limited for the year ended $31$ December $2023$ amounted to R$1400000(2022$: profit before tax of R$1170000).$

Donations paid that are not tax deductible amounted to R$30000(2022$: R$20000).$

Penalties imposed by SARS for late submission of required documents amount to R$2000($non$-$deductible$).$

A provision for leave pay of R$100000$ was recorded on the $31$ December $2023.$ The tax authority only allows this to be deducted when paid.

Equipment

Equipment is recovered through use and the depreciation on equipment amounted to R$220000$ in $2023.$ However, the tax authorities allowed a deduction of R$160000$ for wear and tear on this equipment for the same year.

Dividends that are not taxable amounted to R$100000(2022$: R$80000)$

Rent received in advance $($taxable when received$)-$

R$1300031$ December $2022$

R$1500031$ December $2023$

Insurance expense prepaid $-$

R$600031$ December $2022$

R$1200031$ December $2023$

Machinery

Machinery was acquired on $1$ January $2021$ at a cost of R$1200000$ and sold on the $31$ December $2023.$ Profit on sale of machinery of R$300000.$ Depreciation is calculated at $25\%$ with zero residual value. Wear & Tear is calculated at $20\%$ pa on a straight$-$line basis.

Battery Tester

A battery tester was purchased for R$200000$ on the $2$ January $2023.$ Depreciation of R$20000$ relating to the current year was erroneously debited to Equipment: Cost account.

The error was discovered during finalisation of the accounts. Wear and tear of R$8000$ 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:

Draft a memorandum to the senior accountant in which you explain the tax calculation for the year including the following information:

What is deferred tax?

$2.$ When should a deferred tax asset or deferred tax liability be recognised?

$3.$ Compute the current tax for the year ended $31$ December $2023$

$4.$ The related journals to be processed in respect of tax and deferred tax for the year ended $31$ December $2023$

$5.$ The disclosure of taxation to be included in the financial statements for the year ended $31$ December $2023,$ in accordance with IFRS.

$(10)$

All workings must be shown.

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$).$