The accounting profit of Blom Ltd for the year ended 31 December 2015 amounted to

Question

R2 106 500 before any items for which the accounting and tax treatment differs (see
items below), were taken into account.
The final accounting profit of Blom Ltd for the year ended 31 December 2015
amounted to R2 000 000 after all items were correctly accounted for. The following
differences between the accounting and tax treatment were identified:
• During the current year, Blom Ltd received a dividend of R80 000 that is not
taxable.
• Blom Ltd also incurred research costs of R100 000 during the current year and
correctly expensed it. Assume that 150% of this amount is deductible for tax
purposes for the current year.
• Included in Blom Ltd’s other expenses are a tax penalty and donations paid to the
amount of R24 000 that were not allowed as tax deductions during the current year.
• Blom Ltd acquired an item of plant on 1 January 20.15 at a cost of R500 000. The
plant is depreciated evenly over 8 years with no residual value. For tax purposes,
a 40/20/20/20 tax allowance is applied.
• The normal income tax rate is 28%.
• Blom Ltd made two provisional tax payments of R230 000 and R250 000
respectively during the year.
Calculation of accounting profit and current tax for the year ended 31 December
2015:

Answer 1

1. Accounting profit before adjustments: R2,106,500

2. Add back non-taxable dividend received: R80,000

3. Deduct research costs expensed: R100,000
Tax deduction for research costs: R100,000 * 150% = R150,000

4. Add back tax penalty and non-deductible donations: R24,000

5. Deduct depreciation for accounting purposes:
Annual depreciation = R500,000 / 8 years = R62,500
Depreciation for the year = R62,500

6. Calculate taxable income:
Accounting profit: R2,106,500
Adjustments:
+ Non-taxable dividend: R80,000
- Research costs tax deduction: R150,000
+ Tax penalty and non-deductible donations: R24,000
- Depreciation: R62,500
Taxable income: R2,098,000

7. Calculate current tax liability:
Taxable income: R2,098,000
Tax rate: 28%
Current tax liability: R2,098,000 * 28% = R587,440

Therefore, the current tax for Blom Ltd for the year ended 31 December 2015 is R587,440.