QUESTION 15 The profit before tax of Hanson Limited amounted to N$500 000 for th

Question

QUESTION 15 The profit before tax of Hanson Limited amounted to N$500 000 for the financial year ended 31 December 20.1. 1. Included in profit before tax is the following: N$ Dividends received 50 000 Traffic fines paid 10 000 Depreciation 30 000 2. Hanson Limited made the following provisional tax payments during the year: N$ 30 June 20.12 50 000 31 December 20.12 34 000 3. The normal income tax rate is 28% and SARS allows a wear-and-tear deduction of N$25 000 per year on the assets of Hanson Limited. REQUIRED: 1. Calculate the income tax expense of Hanson Limited for the financial year ended 31 December 20.12. 2. Prepare the SARS: tax payable account in the general ledger of Hanson Limited for the year ended 31 December 20.12. This account had a balance of N$10 000 (credit) on 1 January 20.12.

Explanation / Answer

It is assumed that the Hanson limited owns 80% or more voting stock in another company from which it received dividend, thus 100% dividend is deducted from income.

1 Income tax expenses for year ended 31 December 2012 Profit before tax $500,000 Less: Dividend income $50,000 Add: Traffic fines $10,000 Depreciation $5,000 $15,000 Taxable income $465,000 Tax @ 28% $130,200 Deferred Tax asset = $5000 x 28% = $1400 Income tax payable $130,200 Deferred Tax assets $1,400 Income tax expenses $128,800

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