Exam (elaborations)
FAC3701 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
- Course
- General Financial Reporting
- Institution
- University Of South Africa
FAC3701 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
[Show more]
Content preview
lOMoAR cPSD| 48011787Downloaded by Vincent kyalo ()
, lOMoAR cPSD| 48011787
SOLUTIONS AVAILABLE FOR THESE QUESTIONS
QUESTION 1 (28 marks)
The following information is an extract from the statement of profit or loss and other comprehensive income and
notes of Kanton Ltd for the financial year ended 31 December 20.5:
R
Profit before tax 120 000
Profit before tax includes the following items:
Income
Profit on sale of motor vehicle 25 000
Dividends received Expenses 40 000
Warranty costs
Interest and penalties on the late payment of Value-added Tax Depreciation – plant 50 000
and equipment 15 000
Depreciation – motor vehicles 20 000
30 000
Additional information
1. The following information regarding the property, plant and equipment of Kanton Ltd is an extract from the asset
register after the recording of all the asset transactions for the year:
Cost Carrying Carrying Depreciation Tax base Tax base Tax
1/01/20.3 amount amount rate 31/12/20.4 31/12/20.5 allowance
31/12/20.4 31/12/20.5
R R R R R
Plant and 200 000 160 000 140 000 10% 120 000 80 000 5 years
equipment straightline
25% 5 years
Motor 120 000 60 000 20 000 straightline 72 000 32 000
vehicles
Plant and equipment and motor vehicles were acquired on 1 January 20.3. Included in the cost on 1 January 20.5
is a motor vehicle with a cost price of R40 000 which was sold on 31 December 20.5 for R35 000. The carrying
amount and tax base of the motor vehicle at the date of the sale was R10 000 and R16 000 respectively. No other
property, plant and equipment were bought or sold during the current and prior financial years.
2. On 30 November 20.5 Kanton Ltd started to sell their products with a two year mechanical warranty. The
warranty is an assurance type of warranty. Kanton Ltd made a provision in its annual financial statements for
these future warranty costs to repair defective products returned by customers. The provision for warranty costs
is not deductible for tax purposes, but the actual warranty costs paid are deductible. The balance of the provision
for warranty costs in the financial statements of Kanton Ltd on 31 December 20.5 amounts to R50 000. During
the current year no warranty costs were incurred in respect of the mechanical warranty given for products sold
by Kanton Ltd.
3. Deferred tax is provided for on all temporary differences according to the statement of financial position
approach. The company will have sufficient taxable profit in future against which any unused tax losses can be
utilised. There are no other items causing temporary or exempt differences except those identified in the question.
4. The SA normal tax rate was 28% for both the 20.4 and 20.5 financial years.
QUESTION 1 (continued)
2
Downloaded by Vincent kyalo ()
, lOMoAR cPSD| 48011787
FAC3701
REQUIRED:
a) Calculate the deferred tax balance of Kanton Ltd for both the years ended 31 December 20.4
and 31 December 20.5, according to the statement of financial position approach.
Indicate in your answer if the balance is a deferred
tax asset or liability. (7)
b) Calculate the current tax expense in the statement of profit or loss and other comprehensive
income of Kanton Ltd for the year ended
31 December 20.5. (4)
The movement in temporary differences in the current tax expense calculation should
be calculated using the statement of financial position approach.
c) Prepare the journal entry for the deferred tax movement in the statement of profit or loss and
other comprehensive income of Kanton Ltd for the year ended
31 December 20.5. (3)
d) Prepare only the relevant tax and deferred tax notes in the annual financial statements of
Kanton Ltd for the year ended 31 December 20.5. Your answer must comply with the
requirements of International Financial Reporting Standards (IFRSs).
Ignore comparative figures and accounting policy notes. (14)
QUESTION 2 (23 marks)
The following information relates to Frest Ltd, a retailer of freezers, for the financial year ended 30 June 20.1:
1. Profit before tax for the year amounted to R495 000.
2. Included in profit before tax is dividends received of R25 000.
3. Included in the profit before tax are the following non-deductible/-taxable items according to the SA Revenue
Service:
R
Donations paid 2 000
Incentive allowance received 16 000
4. On 2 July 20.0 Frest Ltd bought a compressor for R205 000 and it was immediately available and brought into
use on this date. The compressor is depreciated according to the straight-line method over 5 years. The
depreciation charge for the current year is included in profit before tax. The SA Revenue Service allows a tax
allowance on compressors over 4 years according to the straight-line method in terms of Section 11 (e) of the
Income Tax Act.
5. On 1 July 20.0, equipment was destroyed by a fire as a result of lightning. The profit realised on this equipment
is included in the profit before tax. Information regarding this equipment is as follows:
R
Insurance claim received 125 000
Cost of equipment 160 000
Carrying amount at 1 July 20.0 96 000
Tax base on 1 July 20.0 80 000
3
Downloaded by Vincent kyalo ()
, lOMoAR cPSD| 48011787
QUESTION 2 (continued)
6. The accounts receivable balance at year-end consisted of the following:
20.1 R 20.0 R
Total amount outstanding Allowance 102 000 (14 97 000
for credit losses 000) (6 800)
88 000 90 200
The SA Revenue Service allows only 25% of the allowance for credit losses as a tax deduction.
7. The company sells freezers with a two year warranty. The warranty is an assurance type of warranty. The
company provides for warranty costs in its annual financial statements. This provision is not deductible for tax
purposes, but the actual warranty costs paid are deductible. The balance of the provision for warranty costs in the
statement of financial position of Frest Ltd on 30 June 20.1 and 30 June 20.0 amounted to R32 000 and R40 000
respectively.
Actual warranties paid during the current year amounted to R36 000 and was debited against the provision for
warranty costs.
8. The deferred tax asset balance on 30 June 20.0 amounted to R8 148. Deferred tax is provided for on all temporary
differences according to the statement of financial position approach. There are no other temporary differences
except those mentioned in the question. There is certainty beyond any reasonable doubt that there will be
sufficient future taxable profit.
9. The SA normal tax rate was 28% for both the 20.0 and 20.1 financial years.
REQUIRED:
a) Calculate the current tax expense in the statement of profit or loss and other comprehensive
income of Frest Ltd for the year ended 30 June 20.1. (12)
b) Calculate the deferred tax balance in the statement of financial position of Frest Ltd for the
year ended 30 June 20.1, by using the statement of financial position approach. List all the
temporary differences and indicate next to each temporary difference whether it results in a
deferred tax asset or deferred tax liability. (8)
c) Prepare the journal entry for the deferred tax movement in the statement of profit or loss and
other comprehensive income of Frest Ltd for the year ended
30 June 20.1. (3)
QUESTION 3 (22 marks)
The accountant of Muan Ltd prepared the following deferred and current tax calculations for the years ended 31 March
20.7 and 31 March 20.8:
1. Deferred tax calculation
Taxable/ Deferred tax
(deductible) asset/
Carrying temporary (liability)
amount Tax base difference @ 29%
R R R R
31 March 20.7
Plant 680 000 640 000 40 000 (11 600)
Motor vehicles 129 000 137 600 (8 600) 2 494
809 000 777 600 31 400 (9 106)
4
Downloaded by Vincent kyalo ()
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller MasterVincent. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,25. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
68443 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 15 years now