University of Kwa-Zulu Natal

Accounting 211
2022

Tutorial week 8
Tutorial Solution

Taxation
 Solutions to GAAP : Graded Questions Taxation: various types and current income tax

Solution 5.10

a) Tax-related journals
Debit Credit
31 December 20X2
Income tax expense (SOCI: P/L) W1 78 400
Current tax payable: income tax 78 400
(SOFP: L)
Current income tax provided for the year.

31 December 20X3
Current tax payable: income tax (SOFP: L) 78 400 – 77 300 1 100
Income tax expense (SOCI: P/L) 1 100
Over-provision for the prior year.

Income tax expense (SOCI: P/L) W1 79 100

Current tax payable: income tax 79 100
(SOFP: L)
Current income tax provided for the year.

Dividends declared (OE) Given 30 000

Current tax payable: dividends tax (SOFP: L) 30 000 x 15% 4 500
Shareholders for dividends (SOFP: L) 30 000 – 4 500 25 500
Dividends declared and dividends tax withheld.

© Service & Kolitz, 2022 - 2023 Chapter 5: Page 20

 Solutions to GAAP : Graded Questions Taxation: various types and current income tax

Solution 5.10 continued...

b) Income tax expense note

BIG BLUE LIMITED

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20X3
20X3 20X2
5 Income tax expense C C
Current taxation
- Current year provision W1 79 100 78 400
- Prior year over provision 20X3: (78 400 – 77 300) (1 100) -
20X2: first year of operations

Tax expense per statement of comprehensive income 78 000 78 400

Tax rate reconciliation:

Applicable tax rate (ATR) 28% 28%

Tax effects of:
Profit before tax 20X3: 300 000 x 28%; 84 000 78 400
20X2: 280 000 x 28%

Exempt capital profit 20X3: (26 000 - 13 000) x 28% (3 640) -

Exempt dividend income 20X3: 5 000 x 28% (1 400) -
Non-deductible fine 20X3: 500 x 28% 140 -
Prior year over-provision of current tax Per above (1 100) -
Tax expense per statement of comprehensive income Given 78 000 78 400

Effective tax rate (ETR) 20X3: 78 000 / 300 000 26% 28%
20X2: 78 400 / 280 000

c) Statement of financial position

BIG BLUE LIMITED

STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X3
20X3 20X2
Current liabilities C C
Current tax payable [3 000 (income tax) + 4 500 (dividends tax)] 3 000 5 000
[W2 / (30 000 x 15%)]
Shareholders for dividends 30 000 – 4 500 25 500 0

© Service & Kolitz, 2022 - 2023 Chapter 5: Page 21

 Solutions to GAAP : Graded Questions Taxation: various types and current income tax

Solution 5.10 continued …

Workings

W1: Current income tax

20X3 20X2
Profit before tax Given 300 000 280 000
Less capital profit Given (26 000) 0
Add taxable capital gain 26 000 x 50% (inclusion rate) 13 000 0
Less dividend received (exempt) (5 000) 0
Add fine (non-deductible) 500 0
Taxable profit 282 500 280 000

Current income tax 20X3: 282 500 x 28% 79 100 78 400

20X2: 280 000 x 28%
Dr TE Cr CTP Dr TE Cr CTP

W2: Current income tax payable

CURRENT TAX PAYABLE/ RECEIVABLE: INCOME TAX

20X3 C 20X3 C
31 Dec Income tax expense 1 100 1 Jan Balance b/d 5 000
(overprovision)
(C78 400 – C77 300)
Bank 80 000 31 Dec Income tax expense (W1) 79 100
Balance c/d 3 000
84 100 84 100
31 Dec Balance b/d 3 000

© Service & Kolitz, 2022 - 2023 Chapter 5: Page 22