QUESTION 2 (42 MARKS)
Casio Ltd is a wholesaler and retailer of stationery and other related products. The company
supplies stationery stores and public schools throughout Gauteng and Mpumalanga. With the
recent issues in the Limpopo province, the board of directors has decided to expand the
operations and supply all the schools in that province. The financial director, Mr. Pentel, has
been advised by the bank that a complete set of financial statements are required with the
application for a long term loan.
Mr. Pentel is required to attend urgent business in Cape Town and has enlisted your
assistance in preparing some of the financial information while he is away. He has provided
the following information for the financial year ended 30 June 2024:
Income
❖ The revenue for the year comprised of sales of R23 720 420. The mark up on cost of goods
is constant at 20%.
❖ Other income comprises of the following items:
R
Interest on debentures
(Casio Ltd holds 3 500 R120 15% debentures)
37 500
Royaltiesreceived during 2024
(The royalty agreement statesthat R22 000 is due every month)
220 000
Royalties received in advance – 1 July 2023 66 000
❖ Casio Ltd has a 20% share in Sharpie Limited which is listed on the Johannesburg Stock
Exchange. Sharpie Limited paid an interim dividend of R120 000 on 29 December 2021 to
the shareholders and declared a final dividend of R300 000 on 27 June 2024
❖ The sales agent in Mpumalanga sold 20 000 school stationery packs at R132 each by 30
June 2013. The agreement with Casio Ltd was that the sales agent will receive a
commission of 15% for each of the stationery packs sold. This information was only
received on 4 July 2024 and had not yet been accounted for in the financial records.
Expenses
❖ The operating expenses for the year were R1 114 000 and included the following:
R
Finance costs 286 000
Insurance expenses paid for July and August 2024 72 000
Insurance expenses paid in advance – 1 July 2023 32 000
Donations (R40 000 is not tax deductible) 130 000
Furniture and equipment
❖ Furniture and equipment was originally purchased on 1 July 2021 at a cost of
R1 680 000. Depreciation is provided at 10% p.a. This furniture and equipment was
destroyed by fire in the factory during the last week of April 2024 and was not insured.
The depreciation and loss as a result of the fire has been a correctly accounted for in the
operating expenses for the year. Despite the damage caused by the fire, Casio Ltd could
still continue business in its existing premises.
❖ On 1 June 2024 the company purchased new furniture and equipment. This new furniture
and equipment cost R2 100 000 and management considers it to have a useful life of 5
years and no residual value.
❖ The tax authorities have granted an annual allowance of 20% (this allowance is not
apportioned for time).
Intangible asset
❖ Casio Ltd obtained the help of a website consultant to design a new website for the
company in order to boost on-line sales during the 2023 financial year. The consultant
charged R400 000 for the website development and the financial director agreed to pay
R200 000 when development commenced. This was capitalized when paid.
However, as many difficulties arose due to additional firewalls required, by the end of the
2023 financial year end management was uncertain whether this website would be
feasible and wrote of the R200 000 as an expense.
❖ During the 2024 financial year, new software programs became available which aided in
the security features required for the website. Management incurred an additional
R118 000 for this new software program and paid the consultant the balance of his fee.
By 30 April 2024, management could prove feasibility of the new website and the
availability of a market and subsequently planned to launch the product from 1 May 2024.
The financial director, Mr. Pentel, concluded that the website met the requirements of IAS
38 and capitalized the costs incurred in the current financial year. The website is to be
amortised over a useful life of 5 years from the date of launch. This cost has not yet been
included in the 2024 operating expenses.
Additional information
• The deferred tax account had a credit balance of R84 560 at the beginning of
the year arising from furniture and equipment; royalties received in advance
and prepaid insurance.
• The assessment received from the tax authorities for the 2023 year reflected
that the amount of the assessed tax on taxable profit was R18 000 more than
the amount provided for current normal tax in the 2023 year.
• The normal tax rate is 28% for all periods presented and the inclusion rate for
purposes of capital gains is 66.67%.
You are required to:
a) Prepare the statement of profit or loss and other comprehensive income of Casio Ltd
for the year ended 30 June 2024
(18 marks)
b) Prepare the taxation (including the tax reconciliation note) and deferred taxation note for the financial statements of Casio Ltd for the year ended 30 June 2024.
(24 marks)
a) Statement of profit or loss and other comprehensive income of Casio Ltd for the year ended 30 June 2024:
Revenue:
Sales revenue: R23,720,420
Markup on cost of goods at 20%: R4,744,084
Total revenue: R28,464,504
Other income:
Interest on debentures: R37,500
Royalties received during 2024: R220,000
Royalties received in advance: R66,000
Dividend from Sharpie Limited: R300,000
Total other income: R623,500
Total income: R29,088,004
Expenses:
Operating expenses: R1,114,000
Finance costs: R286,000
Insurance expenses: R72,000
Donations: R130,000
Depreciation on furniture and equipment: R234,000
Total expenses: R1,836,000
Net profit before tax: R27,252,004
b) Taxation and deferred taxation note for the financial statements of Casio Ltd for the year ended 30 June 2024:
Taxation:
Net profit before tax: R27,252,004
Tax at 28%: R7,632,561
Deferred taxation:
At beginning of the year: R84,560
Assessed tax on taxable profit exceeding provided tax in 2023: R18,000
Current year deferred tax: R27,252,004 x 28% = R7,632,561
Total deferred tax: R7,785,121
Net deferred tax: R7,700,561
Taxation reconciliation note:
Net profit before tax: R27,252,004
Tax at 28%: R7,632,561
Tax effect of non-deductible expenses: R40,000 x 28% = R11,200
Total taxation: R7,643,761
Therefore, the total current and deferred taxation for the year ended 30 June 2024 is R7,643,761 + R7,700,561 = R15,344,322.