The following information is provided to you with regards to Goodluck Ltd for the financial year ended 31 December 2024.
• Accounting profit before tax is R5,035,750. Included in this profit are the following;
- Dividend received from an investment in a JSE listed company of R85,000
- Fines & penalties paid for the late submission of the June VAT return of R19,927.
- Profit of R160,000 on the sale of land.
- A provision for a lawsuit for environmental negligence of R500,000. SARS will not allow any deductions in this regard.
- A provision for a CCMA lawsuit of R270,000. SARS will allow a deduction in this regard
• In the prior year, the company had an assessed tax loss of R750,000.
Additional information:
• The accounting policy for Goodluck Ltd is to revalue land owned every 4 years. Land is not depreciated. The land sold was purchased on 19 July 2006 for R250,000 and had a carrying value of R325,000 on the date of sale. The carrying value was consistent with the prior year.
• There was an additional piece of land which was bought on 15 April 2020 for R400,000. The land currently has a value of R420,000 in the records of the company. A fair value adjustment of R5,950 was processed in the current year.
• The company’s depreciation policy is to depreciation equipment over 8 years and machinery over 10 years. The SARS wear and tear allowance for both equipment and machinery is 20% and not apportionable. The plant was purchased on 1 January 2018 for R160,000 and machinery was purchased on 1 January 2021 for R800,000. The depreciation for the year has been correctly accounted for and included in the accounting profit before tax.
• The balance for income paid in advance for 2023 was R40,600. In 2024 this balance was R6,300.
• The balance for prepaid expenses in 2023 was R34,000. In 2024 the balance was R67,000.
• The company made a provisional tax payment of R675,000 on 30 June 2024. A tax expense was recognised for this payment.
• The SARS tax rate for companies is 27%. The capital gains tax inclusion rate is 80%.
Required
1. Calculate the deferred tax balance. Ignore CGT for the calculation of deferred tax.
2. Prepare the tax journal entries (including deferred tax).
3. Prepare the income tax expense note including the tax rate recon.
Journal narrations are not required