Ride On (Pty) Ltd (hereafter RO) is a local transport company. They provide transport services for employees,
Question:
Ride On (Pty) Ltd (hereafter “RO”) is a local transport company. They provide transport services for employees, students and school learners. RO does not deal directly with the public, but operates on a contract signed with various employers, universities and schools. The company has a 30 June year end.
The accounting profit before tax for the financial year ended 30 June 2018 is N$920 000. Included in the accounting profit before tax are non-taxable foreign income of N$125 000 and donations made of N$1 500.
The company acquired a new fleet of transport vehicles on 1 July 2017 for N$990 000. The vehicles have a four year useful life and N$270 000 residual value. In terms of the Income Tax Act, 1/3 of the cost of the asset is allowed as a tax deduction, not apportioned for part of a year. The old vehicles which were fully depreciated, were traded in (sold to the motor dealer in partial payment of the new vehicles) for the new vehicles at their residual value of N$120 000. The tax base on date of sale was N$80 000.
Annual price increases are effected on 1 July annually. However, RO decided to implement a new pricing strategy whereby it offers customers a 10% discount on their transport fees, if they pay the annual fees in advance. A group of employers decided to take up the offer and to pay the full amount of N$210 000 on 28 June 2018. RO is then contractually bound to provide their transport services for the year ended June 2019.
The current tax rate is 28% (2017: 28%).
Required:
a) Calculate the Current tax payable of RO (Pty) Ltd as at 30 June 2018.
b) Calculate the Deferred tax balance of RO (Pty) Ltd as at 30 June 2018 using the Statement of Financial Position approach.
