AFS Ltd

AFS Ltd is a large financial services provider. The company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The current reporting date of AFS Ltd is 31 December 2023.

AFS Ltd has the following assets and liabilities in its statement of financial position as at 31 December 2023:

·      AFS Ltd owns owner-occupied land which had a carrying amount of R5 million on 31 December 2022, and an original cost price of R3 million. The land is accounted for on the revaluation model of IAS 16 Property, Plant and Equipment. The land was revalued to a fair value of R5,5 million on 1 January 2023. 

·      AFS Ltd owns owner-occupied office buildings which had a carrying amount of R13 775 000 on 31 December 2023. The office buildings are accounted for on the cost model of IAS 16. The South African Revenue Service (SARS) does not allow any deductions in respect of the office buildings for tax purposes. 

·      The statement of financial position reflected a trade receivables balance of R2,5 million on 31 December 2023. The balance is stated net of an allowance for expected credit losses of R300 000. SARS allows 40% of the allowance for expected credit losses as a deduction for tax purposes. 

·      Current liabilities on 31 December 2023 include revenue received in advance of R250 000 and a provision for warranty costs of R120 000. The revenue received in advance had already been taxed during the year ended 31 December 2023, while the expenses related to warranty costs will only be allowed as a deduction for tax purposes when it is paid in cash. 

·      The corporate tax rate is 27% and the capital gains tax inclusion rate is 80%.

Source: Adapted Smit, A. 2024.