Income Tax

FINANCIAL ACCOUNTING 3

QUESTIONS: TAXATION

APRIL 2015

QUESTION 1 (11 MARKS)

The following tax rates are applicable for the 2013 and 2014 tax years:
Dividends tax – 15 %
Income tax – 28 %

Fit and Active Limited is a company which promotes fitness and healthier lifestyle
choices to its members. The company has its financial year end on 31 December.

The following is an extract from the books of Fit and Active Limited:

2013 TAX YEAR

31 December 2013 Estimated taxable profit for the 2013 tax year – R233 800

Provision for taxation for 2013 tax year– R65 464

Total provisional payments for 2013 tax year– R61 824
Current tax payable: Income tax (Credit balance) – R3 640

20 January 2014 Received assessment for the 2013 tax year:

Assessed taxable income – R257 643 and
Assessed tax payable – R72 140.

25 January 2014 Pay the third (top-up) payment.

2014 TAX YEAR

30 June 2014 The first provisional tax payment was made. (The estimated
taxable income for the 2014 year is R221 430.) (Round off to the
nearest Rand.)

15 December 2014 The second provisional tax payment was made. (The estimated
taxable income for the 2014 tax year is R228 572.) (Round off to
the nearest Rand.)

An ordinary dividend of R0,10 per share was declared on this

date to all existing shareholders. (The issued ordinary shares at
this date were 200 000 shares.)

31 December 2014 Accounting profit for the 2014 year 227 000
Less: Non-taxable dividend income (15 000)
Estimated taxable profit for the 2014 tax year 212 000

Provision for taxation ?

1
 Income Tax

REQUIRED:

1.1 Prepare the Current tax payable account in the ledger for the period 1
January 2014 to 31 December 2014. (Show all dates for the relevant entries)
(7)

1.2 Prepare the journal entries to record the ordinary dividend and dividends tax
on 15 December 2014. (4)

1.3 The taxation note (rate reconciliation included) for the financial year ended
31 December 2014. (No comparative figures are required.)

APRIL 2013

QUESTION 1 (19 MARKS)

Nelson Ltd is a company operating in the cosmetic industry. The financial year-end of
the company is 28 February.

The following information relates to the financial year ended 28 February 2015:

1. Statement of comprehensive income:

Income tax expense (Provision for tax as estimated for 2015.) R100 000
2. Extract from the statement of financial position:
South African Revenue Services (Credit balance.) R3 000

During the financial year ended 29 February 2016 the following transactions,
amongst others, took place:

2015
March 31 Received the outstanding tax assessment of R112 000 for the 2015
financial year.

April 14 The final settlement of the 2015 tax assessment was made.
August 31 The taxable profit for the 2016 year was estimated at an amount of
R365 000. Consequently the first provisional tax payment was
calculated and paid.

2016
February 28 The taxable profit for the 2016 year was estimated at an amount of R380
000 and a second provisional tax payment of R52 000 was paid.

2
 Income Tax

The following information relates to the financial year ended 28 February 2016:

1. Statement of comprehensive income:

Net profit before taxation (See note number 2 below.) R400 000
Income tax expense ?

2. Included in the above net profit before taxation is:

 A non-taxable dividend income of R21 000, and

 A fine of R1 000. (This fine is not deductible for tax purposes.)

NOTE:

 In answering this question you should ignore dividend tax.

 Calculate normal tax at a rate of 28 % on taxable profits.

REQUIRED:

Prepare in accordance with the International Financial Reporting Standards and to the
extend that information is available, the:

1.1 Current tax payable: income tax account (SARS) for the financial year
ended 28 February 2016. (Balance the account at 28 February 2016.) (7)

1.2 The taxation note (rate reconciliation included) for the financial year
ended 28 February 2016. (No comparative figures are required.) (12)

QUESTION 3 (6 MARKS)

Banez Limited is an incorporated entity in South Africa and registered with the South
African Revenue Service as a provisional taxpayer. The company makes its first
provisional payment on 30 June and the second provisional payment on 31 December
every year.

The senior accountant of Banez Limited gave the following information about the
company’s financial year 2012:

 Estimated taxable income as at 30 June 2012 was R2 453 500.

 Estimated taxable income as at 31 December 2012 was R1 980 500
 The tax rate according to South African Revenue Services is 30%

REQUIRED:

3
 Income Tax

3.1 Calculate the amount of first and second provisional tax paid to the
South African Revenue Service on the 30 June and 31 December,
respectively, for the year ended 31 December 2012. (4)

3.2 Prepare the journal entry for the first provisional payment. (2)

MAY 2010

QUESTION 2

The following information was extracted from the accounting records of ITALIA LIMITED
for the year ended 28 February 2009.

1. The provisional tax payments for the year amounted to R580 000, consisting of a
first payment of R280 000 and a second payment of R300 000.

2. The accountant calculated the taxable income for the year to be R1 860 000 while
the statement of comprehensive income reflected a profit before tax of
R2 340 500.

The following information was extracted from the accounting records for the
financial year ended 28 February 2010:

1. On 5 June 2009 the company received its tax assessment for the company tax for
the year ended 28 February 2009 which reflected a balance due of R11 550. The
accountant agreed with the tax assessment and made the final payment on
12 July 2009 to settle the amount due for the tax year 28 February 2009.

2. On 31 August 2009 the accountant made the first provisional tax payment for the
year ended 28 February 2010. The financial manager provided the accountant
with the following budgeted figures for the year ended 28 February
2010:

Profit before taxation R2 763 600

Taxable income R1 984 200

3. During December 2009 the financial manager revised the budget for the year
ended 28 February 2010 as a result of the profit variation reports generated from
the accounting system. The revised budgeted profit before taxation was ‘
R 2 357 800 and the taxable income was R1 726 700.

4. The draft statement of comprehensive income for the year ended

28 February 2010 reflected a profit before taxation of R2 875 200. The
accountant highlighted the following items for the purposes of calculating taxable
income. The amounts below are included in the R2 875 200 above.

4
 Income Tax

 Dividends received of R23 400 were exempt from tax (not part of taxable
income).

5. The company tax rate is 28%.

YOU ARE REQUIRED TO:

1. Calculate the under/over provision of taxation for the year ended

28 February 2009.

2. The current tax payable (SARS) account in the ledger for the year ended
28 February 2009, showing clearly the payment on 12 July 2009 and the
under/over provision. Balance the account after the above transactions has been
processed.

3. Calculate the first and second provisional tax payments for the 2010 financial
year.

4. Record all the journal entries, including cash transactions, in respect of tax for the
year ended 2009 (only from 1 March) and 2010. Narrations are not required.

5. Disclose the following note for the year ended 28 February 2010:

Taxation note, excluding the reconciliation

APRIL 2017

QUESTION 2 (28 MARKS)

Eureka Limited is a South-African company which offers consulting services to

businesses in need of financial overhaul. The financial year end of the company is
31 December.

The rate of income tax is 28 % on taxable profits. The tax rate has remained
unchanged since 2010.

The following information pertaining to the financial year ended 31 December

2015:

5
 Income Tax

1. Rand
First provisional tax payment 340 000
Second provisional tax payment 230 000
Total payments till 31 December 570 000
2015

2. The accountant calculated the taxable income for the year to be R1 700
000 while the statement of comprehensive income reflected a profit before
tax of R2 300 000.

3. On 10 January 2016 the company received its tax assessment for the
company tax (for the year ended 31 December 2015), which reflected a tax
assessment of R520 000. The accountant agreed with the tax
assessment. On 12 January 2016, the accountant made the final payment
OR recorded a refund from SARS (correct option to be calculated) to settle
the amount due for the tax year 31 December 2015.

The following information pertaining to the financial year ended 31 December

2016:

4. On 30 June 2016 the accountant made the first provisional tax payment for
the year ended 31 December 2016. Calculations were made after the
financial manager provided the accountant with the following figures for the
financial year ended 31 December 2016:
Estimated profit before taxation R2 385 000
Estimated taxable income R2 700 000

5. On 25 December 2016 the accountant made the second provisional tax

payment for the year ended 31 December 2016. Calculations were made
after the financial manager provided the accountant with the following
revised figures for the financial year ended 31 December 2016:
Estimated profit before taxation R2 460 000
Estimated taxable income R1 500 000

6. The draft statement of comprehensive income for the year ended 31

December 2016 reflected a profit before taxation of R2 200 000. The
accountant highlighted the following items for the purposes of calculating
taxable income. The amounts below are included in the profit before
taxation of R2 200 000:

6
 Income Tax

 Dividends received of R400 000. (Dividends received are exempt

from tax.)

 Fines of R120 000. (Fines are not deductible for tax purposes.)

REQUIRED:

2.1.1 Consider additional information 1, 2 and 3 and calculate the under/over

provision of taxation for the year ended 31 December 2015. State whether it
is an over- or under-provision for tax for the year ended 31 December 2015. (2)

2.1.2 Prepare general journal entries to record the following transactions on 10 and
12 January 2016:
 The under/over provision of taxation
 The refund from/payment to the tax authorities.
(Narrations are not required.) (6)

2.2 Consider additional information 4 and calculate the first provisional tax
payment on 30 June 2016. (2)

2.3 Consider additional information 5 and calculate the second provisional tax
payment on 31 December 2016. (3)

2.4 Consider additional information 6 and provide the journal entry to record the
provision for taxation for the year ended 31 December 2016.
(Narrations are not required.) (4)

2.5 Prepare the “Income Tax Expense” note for Eureka Limited for the year ended
31 December 2016 in compliance with IAS1. (11)