FAC3701 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024

FAC3701
ASSIGNMENT 1 SEMESTER 2 2024
UNIQUE NO.
DUE DATE: 2024

, a. To calculate the deferred tax balance in the statement of financial position of TopStyle
Ltd for the years ended 30 June 2022 and 30 June 2023, we will follow the statement of
financial position approach as per IAS 12, Income Taxes. This approach requires
recognizing deferred tax assets and liabilities for all temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.

Step 1: Identify the temporary differences

1. Administration Building

 Carrying amount (1 July 2022): R1,500,000 - (R1,500, years) × 9/12 months =
R1,425,000
 Tax base: R1,500,000
 Temporary difference: R1,425,000 - R1,500,000 = (R75,000)
 Deferred tax (2022): No deferred tax as the SA Revenue Service does not allow a tax
allowance on the building.

For 2023, the carrying amount further reduces by another year's depreciation:

 Carrying amount (30 June 2023): R1,500,000 - (R1,500, years) × 21/12
months = R1,350,000
 Tax base: R1,500,000
 Temporary difference: R1,350,000 - R1,500,000 = (R150,000)
 Deferred tax (2023): Still no deferred tax as no tax allowance is provided on the
building.

2. Delivery Vehicles

For the old delivery vehicles (before sale):

 Carrying amount (30 June 2022): R262,500
 Tax base: R243,750
 Temporary difference: R262,500 - R243,750 = R18,750
 Deferred tax (2022): R18,750 × 28% = R5,250 (Deferred Tax Liability)

For the year ended 30 June 2023, we calculate the deferred tax for the new hybrid vehicles:

 Carrying amount: R600,000 - (R600,000 - R80,000) / 6 years × 6/12 months =
R560,000
 Tax base: R600,000 - R75,000 = R525,000
 Temporary difference: R560,000 - R525,000 = R35,000
 Deferred tax (2023): R35,000 × 27% = R9,450 (Deferred Tax Liability)

3. Provision for Warranty Costs