FIAC7319 & FIAC7311 – ICE Task 2 (Optional)

Delta Ltd. conducts business in the pharmaceutical industry and is listed on the JSE. The company’s
year-end is 28 February. Delta Ltd. is a registered VAT vendor.

You are responsible for the preparation of the financial statements of Delta Ltd. for the year ended
29 February 2024.

The following information is available for the 2024 financial year:

Delta Ltd.
Trial balance for the year ended 29 February 2024
Dr Cr
Notes R R
Share capital (1 000 000 ordinary shares) 350 000
Retained income 9 829 860
Trade payables 1 690 000
Revenue 1 16 308 000
Dividends received 140 000
Rental received 220 000
Cost of sales 11 000 000
Operating expenses (including depreciation) 3 120 500
Donations (not deductible for tax purposes) 60 000
Interest paid 66 500
Loss on sale of land 5 200 000
Penalties 2 1 398 500
Dividends paid 3 210 000
Deferred tax asset (1 March 2023) 3 122 360
Trade and other receivables 4 2 405 600
Land at cost 5 3 663 000
Office buildings at carrying amount 5 2 442 000
Plant and machinery at carrying amount 5 945 000
Cash and cash equivalents 2 044 000
Prepaid insurance 88 900
Inventory 771 500
28 537 860 28 537 860

Additional information

1. On 31 January 2023, Delta Ltd. received an amount of R575 000 (VAT included) from a customer
for products that were only delivered in June 2023. The accountant recognised the R575 000 as
revenue in January 2023. The full R575 000 was taxed in the financial year ended
28 February 2023. The South African Revenue Service (SARS) indicated that they will reopen the
2023 assessment in respect of this information. The figures in the trial balances have not yet
been adjusted to account for the correction of the above. All amounts are regarded as material.

2. On 26 July 2023 the Competition Commission fined Delta Ltd. for price fixing on one product. A
fine of R1 398 500 was imposed on Delta Ltd. as a result of the existence of a vertical agreement
between Delta Ltd. and Alpha Ltd. for setting prices on the specific product under review. This
penalty is not deductible for tax purposes.
FIAC7319 & FIAC7311 – ICE Task 2 (Optional)

3. The net deferred tax asset of R122 360 as at 28 February 2023, consisted of the following:

Dr/(Cr)
R
Property, plant and equipment (143 661)
Allowance for credit losses 67 221
Unused tax loss 198 800
122 360

All the temporary differences that gave rise to the net deferred tax asset were taxed at 28%. The
final tax assessment issued by SARS for the financial year ended 28 February 2023 reflected an
assessed tax loss of R710 000 which was accepted by Delta Ltd.

On 28 February 2023 the management of Delta Ltd. was of the opinion that future taxable profits
and future capital gains were probable as the budget for the coming financial year showed a
sharp increase in profits as a result of a new contract obtained by the company. This opinion
remained unchanged for the year ended 29 February 2024.

The current tax expense for the year ended 29 February 2024 was correctly calculated at R510
179 (after taking into account the additional information provided). Deferred tax for the year
ended
29 February 2024 has not yet been calculated or provided for.

4. Trade and other receivables were made up as follows on 29 February 2024:

R
Trade receivables 2 595 300
Loss on allowance on trade receivables (410 600)
Other receivables 220 900
2 405 600

SARS has consistently granted and annual allowance of 25% on the allowance for credit losses.

5. On 12 March 2023 Delta Ltd. purchased land for the future development of a new plant. Due to
the impact of Covid-19, the directors agreed to sell the land as soon as possible. The land was
sold on 13 December 2023 at a loss of R200 000 (excluding VAT) and this is a capital loss for tax
purposes.

Delta Ltd. depreciates office buildings at R165 500 per annum, while SARS permits no deduction
on the buildings.

The tax base of the plant and machinery is R546 000 on 29 February 2024.

6. The normal income tax rate is 27% for the 2024 financial end and 28% for the 2023 financial year
end. The inclusion rate for capital gains tax is 80%.
FIAC7319 & FIAC7311 – ICE Task 2 (Optional)

ICE Task questions (ICE Task 2) (20 marks)

Description for test:

This test requires you to complete the question on your own and use your answer to answer the
selected questions in the test.

Instructions for test:

Complete the answer on a separate page and use your answer to tackle the questions in this
test. For each question, only select the correct answer. No workings are required to be submitted.

1. The income tax expense amount in the statement of profit or loss and other comprehensive
income for the year ended 29 February 2024 amounts to: (1 mark)
o R777 926
o R841 820
o R643 020
o R529 074

2. The profit before tax in the statement of profit or loss and other comprehensive income for
the year ended 29 February 2024 amounts to: (1 mark)

o R1 322 500
o R822 500
o R602 500
o R1 397 500

3. Office building’s depreciation would have commenced when the building was brought into
use:
o TRUE
o FALSE (1 mark)

4. On 29 February 2024, Ditsy Ltd. had a deferred tax asset amounting to R5 387 in the
statement of financial position. (1 mark)
o TRUE
o FALSE

5. Insert the amounts that should be included in the prior period error note (indicated as A, B,
C). The prior period error note for Ditsy Ltd. looks as follows: (3 marks)

5. Prior period error

Revenue received in advance during the 2023 financial period was incorrectly
recognised as revenue in the financial year ended 28 February 2023 instead of the
financial year ended 29 February 2024. The amount recognised also incorrectly
included VAT that was charged on the amount received. The comparative amounts
were restated, and the change had the following effect:
FIAC7319 & FIAC7311 – ICE Task 2 (Optional)

2023
R
(Decrease)/Increase in revenue
[A]
Decrease/(Increase) in income tax expense [B]
(Decrease)/Increase in profit [C]

o A=
o B=
o C=

6. What is the deferred tax balance of prepaid insurance on 29 February 2024?

(1 mark)
o R24 003 DTL
o R24 003 DTA
o R18 669 DTL
o R18 669 DTA

7. Insert the amounts that should be included in the prior period error note (indicated as A, B,
C, D, E and F). The prior period error note extract for Ditsy Ltd. looks as follows: (5 marks)

Decrease/(Increase) in revenue received in advance [A]

Decrease/(Increase) in VAT payable [B]
(Decrease)/Increase in deferred tax asset/liability [C] [D]
Decrease/(Increase) in current tax payable [E]
(Decrease)/Increase in equity [F]

o A=
o B=
o C=
o D=
o E=
o F=

8. The capital loss portion for the sale of land in the tax reconciliation amounts to R54 000.
o TRUE
o FALSE (1 mark)

9. Office buildings should be included in the deferred tax table as part of the deferred tax
calculation.
o TRUE
o FALSE (1 mark)

10. IAS 8 stipulates that all prior period errors and changes in accounting estimates should be
applied retrospectively.
FIAC7319 & FIAC7311 – ICE Task 2 (Optional)

o TRUE
o FALSE (2 mark)

11. When applying the revaluation model, any increase in the carrying amount will be credited
in the revaluation surplus account, and since this account is presented in other
comprehensive income, this upward revaluation will not affect profit or loss
o TRUE
o FALSE (1 mark)

12. If an asset’s carrying amount is decreased as a result of a revaluation, this decrease shall be
recognised in profit or loss, except to the extent that it reduces a credit balance in the
revaluation surplus account (Other comprehensive income/equity).
o TRUE
o FALSE (1 mark)

13. Land and Buildings are disclosed separately as land is not depreciated.
o True
o False (1 mark)