Link Ltd (Link) is a South African listed entity that specialises in telecommunication services such as...

 

  

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Link Ltd ("Link") is a South African listed entity that specialises in telecommunication services such as voice, messaging, and data services. You are assisting in the preparation of the annual financial statements of Link Ltd for the year ended 31 December 2018. There are a number of issues that the Financial Manager would like you to assist him with. The following information is available: Part A (17 marks, 25.5 minutes) Below are the deferred tax balances as per the different categories as at 31 December 2017: Plant and machinery Furniture and fittings Payments received in advance Provision for warranty claims Deferred tax balance at 31 December 2017 R 70 000 Cr 28 000 Cr (1 400) Dr (14 000) Dr 82 600 Cr Furniture and fittings Link bought furniture and fittings for R250 000 on 01 January 2015, which were available for use immediately. The policy of the company is to depreciate all furniture and fittings on a straight-line basis over 5 years from the date the assets became available for use. The South African Revenue Services (SARS) allows wear and tear on furniture and fittings of 50% in the first year, 30% in the second year, and 20% in the third year (with no apportionment/pro rata of wear and tear allowances in all years). Link sold all the furniture and fittings on 31 December 2018 for R300 000. Donation of shares Link granted 5 000 shares with a fair value of R15,00 per share to a group of handicapped individuals who are not employed by Link. These shares were issued to enhance the company's image and to increase its customer base. No cash or identifiable consideration was received on granting of these shares. Additionally, no service conditions were imposed on the group of handicapped individuals. The shares granted are not deductible for tax purposes. The Financial Manager processed the following correct journal entry to account for the share issue: 01 March 2018 Donation (P/L) Share capital (SOFP) (15 x 5000) Donation of shares to handicapped people Dr 75 000 Cr 75 000 Redeemable Preference Shares On 31 March 2018, Link issued 10% redeemable preference shares for R100 000. The preference shares are redeemable at the option of Link, unless the share price of the company drops below R15,00 per share, in which case the preference shares are redeemable immediately. The shares did not trade at less than R15,00 per share during the year ended December 2018. A preference dividend of R10 000 was declared on 31 December 2018. Link is obliged to declare and pay the preference dividend annually, without any discretion. No tax deductions are received for the preference dividends paid annually. Additional Information • On 31 December 2018, the taxable temporary differences on plant and machinery increased by R100 000. • Included in current liabilities at 31 December 2018 is R20 000 for payments received in advance. • The balance of provision for warranty claims at 31 December 2018 is R40 000. • Dividends received for the year amount to R30 000. Dividends received are not taxable. • Included in the expenses is a traffic fine of R5 000. Traffic fines are not considered to be deductible. • The profit before tax of Link for the period ended 31 December 2018 amounted to R800 000. • A portion of the gain on the sale of furniture and fittings is subject to capital gains taxation at an inclusion rate of 80%. The applicable rate is 28%. Question 1 Part A Prepare, in accordance with the International Financial Reporting Standards, the notes to the statement of comprehensive income of Link Limited for the year ended 31 December 2018 in respect of taxation only. The tax reconciliation part of the note is NOT required • Your answer MUST include a detailed CURRENT tax computation (starting with 'profit before tax'). You must provide all tax computation workings. Your answer must follow the statement of financial position liability method in determining the deferred tax balance at 31 December 2018, and consequently, the deferred tax charge or credit to profit or loss for the 2018 year from the given information. Tax rate reconciliation is NOT required. ● Comparatives are NOT required. • Accounting Policy notes are NOT required. Link Ltd ("Link") is a South African listed entity that specialises in telecommunication services such as voice, messaging, and data services. You are assisting in the preparation of the annual financial statements of Link Ltd for the year ended 31 December 2018. There are a number of issues that the Financial Manager would like you to assist him with. The following information is available: Part A (17 marks, 25.5 minutes) Below are the deferred tax balances as per the different categories as at 31 December 2017: Plant and machinery Furniture and fittings Payments received in advance Provision for warranty claims Deferred tax balance at 31 December 2017 R 70 000 Cr 28 000 Cr (1 400) Dr (14 000) Dr 82 600 Cr Furniture and fittings Link bought furniture and fittings for R250 000 on 01 January 2015, which were available for use immediately. The policy of the company is to depreciate all furniture and fittings on a straight-line basis over 5 years from the date the assets became available for use. The South African Revenue Services (SARS) allows wear and tear on furniture and fittings of 50% in the first year, 30% in the second year, and 20% in the third year (with no apportionment/pro rata of wear and tear allowances in all years). Link sold all the furniture and fittings on 31 December 2018 for R300 000. Donation of shares Link granted 5 000 shares with a fair value of R15,00 per share to a group of handicapped individuals who are not employed by Link. These shares were issued to enhance the company's image and to increase its customer base. No cash or identifiable consideration was received on granting of these shares. Additionally, no service conditions were imposed on the group of handicapped individuals. The shares granted are not deductible for tax purposes. The Financial Manager processed the following correct journal entry to account for the share issue: 01 March 2018 Donation (P/L) Share capital (SOFP) (15 x 5000) Donation of shares to handicapped people Dr 75 000 Cr 75 000 Redeemable Preference Shares On 31 March 2018, Link issued 10% redeemable preference shares for R100 000. The preference shares are redeemable at the option of Link, unless the share price of the company drops below R15,00 per share, in which case the preference shares are redeemable immediately. The shares did not trade at less than R15,00 per share during the year ended December 2018. A preference dividend of R10 000 was declared on 31 December 2018. Link is obliged to declare and pay the preference dividend annually, without any discretion. No tax deductions are received for the preference dividends paid annually. Additional Information • On 31 December 2018, the taxable temporary differences on plant and machinery increased by R100 000. • Included in current liabilities at 31 December 2018 is R20 000 for payments received in advance. • The balance of provision for warranty claims at 31 December 2018 is R40 000. • Dividends received for the year amount to R30 000. Dividends received are not taxable. • Included in the expenses is a traffic fine of R5 000. Traffic fines are not considered to be deductible. • The profit before tax of Link for the period ended 31 December 2018 amounted to R800 000. • A portion of the gain on the sale of furniture and fittings is subject to capital gains taxation at an inclusion rate of 80%. The applicable rate is 28%. Question 1 Part A Prepare, in accordance with the International Financial Reporting Standards, the notes to the statement of comprehensive income of Link Limited for the year ended 31 December 2018 in respect of taxation only. The tax reconciliation part of the note is NOT required • Your answer MUST include a detailed CURRENT tax computation (starting with 'profit before tax'). You must provide all tax computation workings. Your answer must follow the statement of financial position liability method in determining the deferred tax balance at 31 December 2018, and consequently, the deferred tax charge or credit to profit or loss for the 2018 year from the given information. Tax rate reconciliation is NOT required. ● Comparatives are NOT required. • Accounting Policy notes are NOT required.

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