Page 28 - Finac1 Test 1 slides - 5. Income Taxes (IAS 12)

INCOME TAXES

Capital Allowances - example

On 1 January 20.12, A Ltd was incorporated and acquired a manufacturing
building at a cost of R2 000 000, an administration building at cost of R500 000

and land at a cost of R300 000 for its own use. Land is not depreciated and no

tax allowance is claimable.

The manufacturing building is depreciated at 4% per year using the straight-
line method and the SA Revenue Service allows a 5% annual allowance on the

manufacturing building.

The administration building is depreciated over 20 years, but no tax allowance

is claimable.

The company's year-end is 31 December 20.12. Assume that the profit before
tax is R200 000 for the year ended 31 December 20.12 and the tax rate is 28%.

Deferred tax is provided on all temporary differences according to the

statement of financial position approach.

Required: Calculate the deferred tax expense for the year ended 31 December 20.12.

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