FINANCIAL ACCOUNTING 202 [FAC612S]

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1 FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 SECOND SEMESTER 2017 FINANCIAL ACCOUNTING 202 [FAC612S] 1

2 Feedbck on Tutoril Letter 1- Semester 2: FAC 612 S Question 1: Current Tx nd Deferred Txtion workings nd disclosures This question ws nswered well, with very few errors mde. Students need to be cler to distinguish between permnent nd temporry differences when prepring the current tx computtion. Not distinguishing between the two does not demonstrte n understnding with wht is permnent nd wht is temporry in nture- nd s such will not be tolerted in exmintions nd could led to penlistion. Question 2: Journl entries on txtion nd computtion of current tx Well nswered. Some students indicted journl for every expense nd income for the yer- which ws not required, s only TAXATION journls were required. Question 3: This section ws extremely well done. Provisions per IAS 37 journl were well nswered. The theory ws lso well ttempted. NOTE: Plgirism remins serious cdemic crime, nd will not be tolerted be wrned.

3 Question 1 (30 Mrks) ) Clcultion of Current income tx nd deferred Income Tx Working 1 2,016 2,015 2,014 Profit before tx -20,000-10,000 10,000 Exempt Income -20,000-20,000-20,000 Assessed Tx loss brought forwrd -140, , ,000 Txble Income/(Tx loss) -180, , ,000 1/2 ech 6 mrks Current Income Tx - - Clcultion of deferred income tx Working 2 CA TB TD DT Blnce 1 Jnury , ,000 30,000 DTA Movement 3,000 Blnce 31 December , ,000 33,000 DTA Movement 9,000 Blnce 31 December , ,000 42,000 DTA Movement 12,000 Blnce 31 December , ,000 54,000 DTA 2 mrks ech 6 mrks Income Tx Expense 2,016 2,015 2,014 Current tx Deferred Tx Current Yer movment in temp differences -12,000-9,000-3,000 Current yer DTA not recognised 9,000 - Prior yer DTA written-down/(bck) -33,000 33,000 Prior yer unrecognised DTA now recognised -9, Tx expense per sttement of comprehensive i -54,000 33,000-3,000 Tx reconcilition 5 mrks Applicble tx rte 30% 30% 30% Tx effects of: Profit before txtion (2016:20 000*30%; 2015:10 000*30%; 2014: ,000-3,000 3,000 3 Exempt dividend income -6,000-6,000-6,000 3 Current ter deferred tx sset not recognised - 9,000-1 Prior yer DTA written down -33,000 33,000-2 Prior yer unrecognised DTA recognised -9, ,000 33,000-3, mrks Effective tx rte (tx expense/profit before t -270% 330% -30% Deffered Income tx sset The deferred tx blnce comprises tx on following types of temporry differences: Tx loss 54,000-33, MARKS 3 mrks

4 Question 2 Journls Debit Credit 2014 Current tx pyble (SOFP) 60,000 Bnk (SOFP) 60,000 Provisionl tx pyments (2 provisionl pyments totl) Income tx expense (p/l) 99,000 Current tx pyble 99,000 Provisionl tx pyments (2 provisionl pyments totl) 2015 Current tx pyble: (SOFP) 70,000 Bnk (SOFP) - 70,000 Income tx expense (SOCI: P/L) 111,000 Current tx pyble: income tx (SOFP: current 111,000 Current income tx estimted for 20X2 (see working 1) Current tx pyble: income tx (SO 5,000 Income tx expense (SOCI: P/L) 5,000 Current income tx over-estimted in 20X1 (see working 2) 2016 Current tx pyble: income tx (SO 100,000 Bnk (SOFP: current sset) 100,000 Provisionl tx pyments (this is the totl of the 2 provisionl pyments - these would normlly ech be journlised seprtely) Income tx expense (SOCI: P/L) 153,000 Current tx pyble: income tx (SOFP: current 153,000 Current income tx estimted for 20X3 (see working 1) Income tx expense (SOCI: P/L) 3,500 Current tx pyble: income tx (SOFP: current 3,500 Current income tx under-estimted in 20X2 (see working 2) 16 Mrks Clcultion of current income tx 2,014 2,015 2,016 Profit before tx 300, , ,000 Permnent differences Add: dontions 40, , , ,000 temporry Differences -10,000-30,000 60,000 Less; profit on sle of vehicles -30,000 Add: recoupment on sle of vehicle 30,000 Less: Profit on sle of mchine -30,000 Add: recoupment on sle of mchine 50,000

5 Question 3 Debit Credit 01/10/2015 Plnt & mchinery: cost (A) 1,000,000 Bnk 1,000,000 (Purchse price) 10-12/2015 Plnt & mchinery: cost (A) 175,480 Bnk 175,480 (Instlltion costs) 01/01/2016 Plnt & mchinery: decommissionin 74,520 Provision for decommissioning libility 74,520 (PV of future decommissioning costs) 31/12/2016 Finnce costs 7,440 Provision for decommissioning libility 7,440 (Unwinding of PV of decommissioning libility) ( ) Deprecition: plnt & mchinery 250,000 Plnt & mchinery: ccumulted deprecition 235,096 Plnt & mchinery: ccumulted deprecition - 14,904 ( / 5); ( / 5) Plese note: the ccumulted deprecition of ech of these two prts the physicl plnt & mchinery 11 Mrks

6 Issue The issue is to determine whether or not to recognise provision in respect of the future decommissioning costs. Definitions IAS 37 defines provision s libility of uncertin timing or mount. IAS Thus it is necessry to firstly determine whether or not there is libility. The Conceptul frmework defines libility s: In determining whether or not present obligtion exists, IAS 37 provides further guidnce in stting tht present obligtion my be legl or constructive obligtion. A legl obligtion is n obligtion tht derives from: Discussion The licence grnted llows the opertion of the plnt nd mchinery but includes cluse tht requires the entity to dismntle the plnt nd mchinery, nd restore the re in the future. There is therefore legl obligtion for the costs ssocited with the future A pst dismntling event tht leds nd restortion. present obligtion is clled n obligting event. The obligting event is the instlltion of the plnt nd mchinery in terms of this licence nd thus there is legl obligtion present t yer-end. A provision for future decommissioning costs must be recognised since there is: terms of the licence; nd required to settle the obligtion (the pyment of the decommissioning costs in the future); nd estimted t C ). This provision must be cpitlised to the cost of the plnt nd mchinery. This is becuse ssets re mesured t cost, nd one of the components of cost is future Note decommissioning to student: costs. IAS 16.16(c) Decommissioning nd dismntling re two terms tht re frequently used in the ccounting world to refer essentilly to the sme thing. Strictly speking, decommissioning refers to tking n sset (e.g. mchine or plnt) out of opertion wheres dismntling refers to the tking prt of n sset (14 Mrks)

FEEDBACK TUTORIAL LETTER TEST 1 SEMESTER FINANCIAL ACCOUNTING 3B [FAC312S]

FEEDBACK TUTORIAL LETTER TEST 1 SEMESTER 1 2018 FINANCIAL ACCOUNTING 3B [FAC312S] 1 Question 1 ) Cost of the Production equipment Purchse price 1,025,000.00 Delivery costs 30,000.00 Instlltion costs 60,000.00