Question One

Omega ltd has been in business for many years, operating in Chinhoyi Town. The Managing Director is a
worried man over the deferred tax liability appearing in the statement of financial position. On 31
December 2011 the deferred tax liability of Omega Ltd amounted to $112 000. Included in this balance
is a deferred tax asset of $28 000 relating to a tax loss.

On 31 December 2012 the company’s cumulative taxable temporary differences amounted to $600 000.
The accounting profit before tax was $80 000, but this included dividends received of $30 000, which are
not taxable, as well as legal costs of $20 000, which may not be claimed for tax purposes.

On 31 December 2013 the company’s cumulative taxable temporary differences amounted to $580 000.
The accounting profit before tax was $100 000, which included no non-taxable or non-deductible items.

Assume that the temporary difference relate to property, plant and equipment measured using the
historical cost model.

The tax rate is 25% throughout the years.

REQUIRED

(a) Calculate the taxable profit/tax loss for the year ended 31 December 2012 before

taking into account the tax loss of the prior year. [2]

(b) Calculate the cumulative tax loss on 31 December 2012 .[2]

(c) Calculate the deferred tax balance on 31 December 2012 [2]

(d) Calculate the taxable profit/tax loss for the year ended 31 December 2013 before

taking into account the tax loss of the prior year. [2]

(e) Calculate the cumulative tax loss on 31 December 2013. [2]

(f) Calculate the deferred tax balance on 31 December 201. [2]

(g) Disclose the income tax expense note to the statement of profit or loss and other

comprehensive income for the years ended 31 December 2012 and 2013. [4]

(h) Disclose the deferred tax note to the statement of financial position as at

31 December 2013, with comparatives. [4]

[20 Mark]
Question Two

Make It has been in business for number of years. Recently their financial accountant Miss Nina Chundu
resigned and migrated to her native home in Zambia where she resumed her duties as a bank manager
at Long ACRES.Before she left Make it Ltd Nina, had prepared the following trial balance for the year
ended 31 December 2015 as follows

Note s $ $

Credits
Ordinary share capital 200 000
Retained earnings ( 1 January 2015) 1 629 087
Long term loan 500 000
Bank Overdraft 40 000
Trade payables 246 000
Revenue 10 500 000
Dividends received 15 000
Deferred tax ( 1 January 2015) 62 090
ZIMRA 107 823
Debits
Donations 15 000
Research costs 3 35 000
Interest paid 75 000
Cost of Sales 6 000 000
Land at cost 2 470 000
Operating expenses(including depreciation ) 2 040 000
Buildings at carrying amounts 2 1 600 000
Plant and machinery at carrying amount 1 630 000
Prepaid insurance premium 25 000
Trade Receivables 4 380 000
Dividends paid (30 June 2015) 30 000

Totals 13 300 000 13 300 000

Additional information

1 The tax base of PPE on 31 December 2015 is $364 000.Depreciation on PPE for the current year is $170
000 and the tax allowance is $188 000.

2 The ZIMRA permits no allowance on the building, while Make It Ltd depreciates the building at $125
000 per annum.

3 The ZIMRA allows as a tax allowance research costs of capital nature to be written off over a period of
4 years.
4 Trade receivables in the following comprise :

Trade receivables 430 000

Allowances for credit losses ( 50 000)

380 000

The ZIMRA permits a deduction of 25% on doubtful debts (credits losses).The allowance for 2014 was
$25 000.

5 The deferred tax balance tax balance at 1 January 2015 arose as a result of a taxable temporary
difference on PPE OF $248 000 and deductible temporary difference for credit losses of $26 250

6 Provision must be made for current tax and deferred tax .Make It ‘s payable ,based on tax return for
2014 was $ 5 000 less than the amount provided for .Assume a tax rate of 28% .Ignore CGT implications
and also ignore comparative amounts

Required

Compile the tax notes to the financial statements of Make It Ltd for the year ended 31 December
2015,showing all relevant calculations that might make ,in accordance to International Financial
reporting standards (IFRS ) [25 marks ]

Question Three

Makwiro Plates was incorporated on 1 Jan 2017. In the year ended 31 December 2017 the company
made a profit before tax of $121 000.

This figure was after a depreciation charge of $11 000.

During the period the company made the following capital additions: $

Plant 48 000

Motor vehicles 12 000

Tax allowances for 2017 are $15 000 .Corporate tax is chargeable at the rate of 30%

The following information is relevant for the year ended 31 December 2018.

1. Capital transactions $

Depreciation charge 14 000

Tax allowances 16 000

2. Interest payable

On 1 April 2018 the company issued $25 000 of 8% loan stock. Interest is paid in arrears on 30
September and 30 March.

Interest receivable

On 1 April Makwiro Plates purchased debentures having a nominal value of $4 000. Interest at 15% p.a is
receivable on 30 September and 30 March. The investment is regarded as a financial asset at fair value
through other comprehensive income.

4. Provision for warranty

In preparing the financial statements for the year to 31 December 2018, the company has recognized a
provision for warranty payments in the amount of $1 200. This has been correctly recognized in
accordance with IAS 37 – Provisions, contingent liabilities and contingent assets, and the amount has
been expensed. The warranty expense is deductible only when paid.

5. Fine

During the period the company has paid a fine of $6 000.

6. Further information

The accounting profit before tax for the year was $125 000

a) Calculate the corporate income tax liability for the year ended 31 December 2018 (5 Marks)

b) Calculate the deferred tax balance that is required in the statement of financial position as at 31
December 2018 and the journal entry thereon (7 Marks)

c) Prepare the income statement note which shows the compilation of the tax expense for the year
ended 31 December 2018 (4 marks)

d) Prepare a note which reconciles accounting profit multiplied by the applicable tax rate and the tax
expense ( 2 marks)

e) Explain why permanent difference between accounting profits and taxable profits do not have
deferred tax consequences (2 Marks)

e) The director of Thaba Limited has read that there are two methods that are provided for in IAS 16 ’
Property, plant and equipment’ as regards to subsequent measurement of property, plant and
equipment. However, he does not know the difference between the two methods with respect to how
and when they are applied, and how they affect the financial statements.

Required
Describe cost model and revaluation model as subsequent measurement methods of valuing property,
plant and equipment, in accordance with IAS 16. (5 marks )

Question Four

The accountant of Uno Ltd prepared accounting profit and taxable income calculations for the year 31
December 2013.

Notes Accounting Taxable income

profit

$ $

Gross profit 475 000 475 000

Other expenses (200 000) (200 000)

Other income 100 000 100 000

Dividends received 40 000

Donations (20 000)

Office buildings-Depn 1 (10 000)

Manufacturing plant -Depn (10 000)

Wear and Tear allowance ( 85 000)

Gain on sale of land 110 000

Rental received for the year 120 000 120 000

Rental received in advance 10 000

Vat penalty (5 000)

550 000 420 000

1 The original cost of the building was $200 000 and the building is depreciated and the building is
depreciated at 5% per annum on the on the straight line method. On 31 December 2013,the carrying
amount was $ 150 000.No tax allowances are given on this building .

2 Information on the manufacturing plant is as follows:

Carrying amount at 31 December 2013 $ 140 000

Tax base $ 115 000

3 Assume the residual value, useful life and depreciation method of all assets were reviewed at each
financial year and that there were no changes.

4 There was no balance on the deferred tax liability account at 31 December 2012

Assume a tax rate of 28% .Ignore Capital gains tax implications

Required

a) Prepare a reconciliation between accounting profit and taxable income by differentiating

between temporary differences ,non taxable items and non-deductible items for tax purposes
[ 13 marks ]

b) Calculate and journalise the transfer to or from the deferred tax liability or asset account at 31
December 2013 [ 10 marks ]

c) Calculate the income tax expense for the year ended 31 December 2013 [ 5 marks ]
d) Prepare the tax rate reconciliation for the for the year ended 31 December 2013 in accordance
with IFRS [ 8 marks ]

Question Four

The accountant of Uno Ltd prepared accounting profit and taxable income calculations for the
year 31 December 2013.

Accountin Taxable
Notes g income
profit
$ $

Gross profit 475 000 475 000

Other
expenses (200 000) (200 000)
Other income 100 000 100 000
Dividends received 40 000
Donations (20 000)
Office buildings-Depn 1 (10 000)
Manufacturing plant -Depn (60 000)
Wear and Tear
allowance ( 85 000)
Gain on sale of land 110 000
Rental received for the year 120 000 120 000
Rental received in advance 10 000
Vat penalty (5 000)
550 000 420 000

1 The original cost of the building was $200 000 and the building is depreciated and the
building is depreciated at 5% per annum on the on the straight line method. On 31 December
2013, the carrying amount was $ 150 000.No tax allowances are given on this building.
2 Information on the manufacturing plant is as follows:
Carrying amount at 31 December 2013 $ 140 000
Tax base $ 115 000

3 Assume the residual value, useful life and depreciation method of all assets were reviewed at
each financial year and that there were no changes.

4 There was no balance on the deferred tax liability account at 31 December 2012

Assume a tax rate of 28% .Ignore Capital gains tax implications

Required

a) Prepare a reconciliation between accounting profit and taxable income by differentiating

between temporary differences ,non taxable items and non-deductible items for tax
purposes [ 13 marks ]
b) Calculate and journalise the transfer to or from the deferred tax liability or asset account
at 31 December 2013 [ 10 marks ]
c) Calculate the income tax expense for the year ended 31 December 2013 [ 5 marks ]

d) Prepare the tax rate reconciliation for the for the year ended 31 December 2013 in
accordance with IFRS [ 8 marks ]