Course Hero Logo

Solution 21b current tax w1 recoupment on sale per

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 63 - 66 out of 95 pages.

Solution 21B: Current taxW1. Recoupment on saleper tax authority20X2Proceeds40 000, limited to cost 30 000: (i.e. 30 000 is a limiting factor)30 000Less tax baseTB = Future tax deductions = 0 (because not tax-deductible)(0)RecoupmentSee note 1Not applicableNote 1:Since the asset was not tax-deductible, there are no past tax-deductions for the taxauthority to recoup (i.e. the tax base was not nil because it had been fully deductedinstead, it was nil, from the beginning, because it was not tax deductible at all).W2. Taxable capital gainper tax authority20X2ProceedsGiven40 000Less base costGiven(30 000)Capital gain10 000Inclusion rateGiven80%Taxable capital gain8 000
Gripping GAAPTaxation: deferred taxation330Chapter 6W3. Profit on saleper accountant20X2ProceedsGiven40 000Less carrying amount(30 000)CostGiven30 000Less accumulated depreciationGiven(no depreciation on this land)(0)Profit on sale10 000- Capital profitSelling price: 40 000Cost price: 30 00010 000- Non-capital profitSelling price limited to cost price: 30 000CA: 30 000020X220X1W4. Current income taxProfitTax: 30%ProfitTax: 30%Profit before tax (accounting profits)(20 000 + 10 000);(Given: 20 000)30 00020 000Permanent differences(and reconciling items)Exempt income (Portion of capital profit that is exempt from tax)(2 000)xLess capital profit on saleW3(10 000)xAdd taxable capital gainW28 000Taxable accounting profits(and tax expense)28 0008 40020 0006 000Movement in temporary differences(and DT adj) Solution 21A / 20A0000Taxable profits and current income tax28 0008 40020 0006 000Solution 21C: DisclosureEntity nameStatement of financial position (extract)As at 31 December 20X2Note20X2C20X1CNon-current assetsProperty, plant and equipmentW1 (Example 20A)030 000Deferred tax assetW1 (Example 20A)600Current liabilitiesCurrent tax payable20X1: o/b: 0 + CT 6 000Pmt: 020X2: o/b: 6 000 + CT 8 400Pmt: 014 4006 000Entity nameStatement of comprehensive income (extract)For the year ended 31 December 20X2Note20X2C20X1CProfit (loss) before tax20X2: 20 000 + 10 00020X1: 20 000 + - 030 00020 000Income tax expense5(8 400)(6 000)Profit for the year21 60014 000Entity nameNotes to the financial statements (extract)For the year ended 31 December 20X220X2C20X1C5. Income tax expensexCurrentW48 4006 000xDeferredW1 (Example 20A)00Income tax expense per statement of comprehensive income8 4006 000Tax rate reconciliationApplicable tax rate30%30%Tax effects of:xProfit before tax20X2: (30 000 x 30%) 20X1: (20 000 x 30%)9 0006 000xExempt capital profit(Capital profit 10 000Taxable capital gain 8 000) x 30%(600)0Income tax expense per statement of comprehensive income8 4006 000Effective tax rate(8 400 / 30 000) & (6 000 / 20 000)28%30%
Gripping GAAPTaxation: deferred taxationChapter 6331Example 22: Sale of non-deductible, depreciable asset at below costA building was purchased for C30 000 on 1 January 20X1 but was sold on 1 January 20X2 forC28 000. The building had been depreciated, straight-line, at 10% p.a. to a nil residual value.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 95 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Winter
Professor
Mr. Daniel Kamotho
Tags
Taxation in the United States, Generally Accepted Accounting Principles, inter relationship of current tax

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture