Class Example

Company ABC (PTY) Ltd has a year ended 31 December

Net Profit before Tax R300 000 for both 2018 and 2019.
Accounting depreciation 10 % Straight line method
Dividend Received R40 000 2018 and R30 000 for 2019.

2018 2019
R R
Net profit before tax 300000 300000
Section 12 E deduction 50% 30%
Income Received in Advance (L) -60000 -20000
Depreciation ( E ) 40000 40000
YOU ARE REQUIRED TO
1. Calculate the carrying amount and tax Base of the equipment Workings 1
2. Calculate current tax and show current tax journals for 2018 and 2019. Workings 2
3. Show Deferred Tax Table PPE Workings 3
4. Show Differed Tax Table PPE with Deferred Journals Workings 4
5. Show differed Tax Table IRA Workings 5
6. Show Deferred Tax Table IRA with Deferred Journals Workings 6
7. SUMMARY OF MORE THAN ONE CATEGORY OF TIMING DIFFRENCE Workings 7
8.Show Extract of Statement of Profit and Loss for the Year ended 31 December 2019 Workings 8
9. Show Extract of Statement of Profit and Loss for the Year ended 31 December 2019 Workings 9

Memo Workings 1

CA TB

Balance 1 /1/2018 400000 400000

-40000 -200000
Balance 31/12/2018 360000 200000
-40000 -120000
Balance 31/12/2019 320000 80000

Memo Workings 2

Tax Expense Calculation

2019 2018

Net profit before tax 300000 300000

Less Dividend Paid -30000 -40000
Add Depreciation 40000 40000
Less Tax Allowance -120000 -200000
Add Income Receive in Advance Closing balance 20000 60000
Less Income Received in Advance Opening Balance -60000 0
Taxable Income 150000 160000

Current Tax 42000 44800

DR CR
 Dr Tax expense (E.) 44800
Cr Current Income Tax Liability ( L ) 44800
Current Tax Expense provision for 208

Dr Tax expense (E.) 42000

Cr Current Income Tax Liability ( L ) 42000
Current Tax Expense provision for 208

Memo Workings 3
Deferred tax Table Property, Plant and Equipment
CA TB TTD DT
a b b- c (b-c) x 28%
PPE 31/12/2017 0 0 0
Additions 400000 400000 0 0
-40000 -200000 -160000 -44800
PPE 31/12/2018 360000 200000 -160000 -44800 Deferred Tax Liability
-40000 -120000 -80000 -22400
PPE ;31/12/2019 320000 80000 -240000 -67200 Deferred Tax Liability

CA TB
31/12/2018 360000 > 200000 Deferred Tax Liability
;31/12/2019 320000 > 80000 Deferred Tax Liability
In the CA > TB , we always have a Deferred TAX Liabilty as the current tax is less accounting tax
Dr Tax Expense ( E)/ CR Deferred Tax Liability (L)
Memo Workings 4

Deferred tax Table Property, Plant and Equipment

TTD JNL
CA TB Step 1 DT Step 2 Step 3
a b b- c (b-c) x 28%
PPE 31/12/2017 0 0 0
Additions 400000 400000 0 0 Dr DTE/ CR DTL
-40000 -200000 -160000 -44800
PPE 31/12/2018 360000 200000 -160000 -44800 DTL
-40000 -120000 -80000 -22400 Dr DTE/ CR DTL
PPE ;31/12/2019 320000 80000 -240000 -67200 DTL

DR CR
Dr Deferred Tax Expense (E,) 44800
Cr Deferred Tax Liability (L) 44800
Deferred tax movement for PPE 2018
DR CR
Dr Deferred Tax Expense (E,) 22400
Cr Deferred Tax Liability (L) 22400
Deferred tax movement for PPE 2019

Memo Workings 5
 Deferred Tax Income Received in Advance
TTD JNL
CA TB Step 1 DT Step 2 Step 3

a b b- c (b-c) x 28%
IRA 31/012/2017 0 0 0 0
60000 0 -60000 -16800
IRA 31/12/2018 -60000 0 60000 16800 Deferred Tax Asset
-40000 0 40000 11200
IRA ;31/12/2019 -20000 20000 5600 Deferred Tax Asset

31/12/2018 -60000 < 0 Deferred Tax Asset

;31/12/2019 -20000 < 0 Deferred Tax Asset
In the CA < TB , we always have a Deferred TAX Liabilty as the current tax is greater than accounting tax
Dr Deferred Tax Asset (A)/ Cr Tax Expense ( E)
Memo Workings 6
Deferred Tax Income Received in Advance
TTD JNL
CA TB Step 1 DT Step 2 Step 3
a b b- c (b-c) x 28%
IRA 31/012/2017 0 0 0 0 Dr DTA (A) / Cr DTE (E)
60000 0 -60000
IRA 31/12/2018 -60000 0 60000 16800
-40000 0 40000 11200 Cr DTA (A) / Dr DTE (E)
IRA ;31/12/2019 -20000 0 20000 5600 DTA

DR CR
Dr Deferred Tax Asset (A,) 16800
Cr Deferred Tax Expense (E) 16800
Deferred tax on Income Received in Advance 2018
DR CR
Dr Deferred Tax Expense (E,) 11200
Cr Deferred Tax Asset (A) 11200
Deferred tax on Income Received in Advance 2019

Memo Workings 7

TTD JNL
Combined Deffered Tax Table CA TB Step 1 DT Step 2 Step 3
a b b- a (b-c) x 28%
PPE 31/12/2017 0 0 0
Additions 400000 400000 0 0 Dr DTE/ CR DTL
-40000 -120000 -80000 -22400
PPE 31/12/2018 360000 200000 -160000 -44800 DTL
-40000 -200000 -160000 -44800 Dr DTE/ CR DTL
PPE ;31/12/2019 320000 80000 -240000 -67200 DTL

IRA 31/012/2017 0 0 0 0 Dr DTA (A) / Cr DTE (E)

60000 0 -60000 -16800
IRA 31/12/2018 -60000 0 60000 16800
-40000 0 40000 11200 Cr DTA (A) / Dr DTE (E)
IRA ;31/12/2019 -20000 0 20000 5600 DTA

SUMMARY OF MORE THAN ONE CATEGORY OF TIMING DIFFRENCE

PPE IRA TOTAL

IRA 31/012/2017 0 0 0
44800 -16800 28000 Dr DTE/ CR DTL
IRA 31/12/2018 -44800 16800 -28000
22400 11200 33600 Dr DTE/ CR DTL
IRA ;31/12/2019 -67200 5600 -61600

Memo Workings 8

Extract of Statement of Profit and Loss for the Year ended 31 December 2019

2019 2018
R R

Net profit before tax 300000 300000

Income Tax Expense 75600 72800

Current Tax 42000 44800

Deferred Tax 33600 28000

Net Income After Tax 224400 227200

Memo Workings 9

Extract of Statement of Profit and Loss for the Year ended 31 December 2019

2019 2018
R R
ASSETS
Property, Plant and equipment
320000 360000

CUURENT LIABILITIES
Current Tax Payable 86800 44800
Deferred Tax Liability 61600 28000