Page 38 - Finac1 Test 1 slides - 5. Income Taxes (IAS 12)
P. 38
INCOME TAXES
Provisions - example
A company has been incorporated in the current year, and it
sells vacuum cleaners with a one-year warranty. The company
provides for the warranty costs and the total of the provision
account at the end of the year is R150 000. Assume that the
profit before tax is R500 000 for the year ended 31 December
20.12 and the tax rate is 28%. The SA Revenue Service will allow
the warranty costs as a deduction once they are actually
incurred. The directors of the company are certain that the
amount provided is not excessive.
Deferred tax is provided on all temporary differences using the
statement of financial position approach. There is assurance
beyond reasonable doubt that there will be sufficient taxable
profit in the future to realise any tax benefits.
38
