Deferred tax, Taxation

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Loren z Limited is a lorry  manufacturer. On 1 January 2011, the company entered into an operating lease (as a lessee) over a company systems. Details of the annual lease rentals, payable in arrears, are as follows:

  • 2011 R0
  • 2012 to 2014 R60 000 per annum
  • 2015 Ro
  • 2016 to 2018 R20 000 per annum

Lorenz Ltd's profit  before tax is R1800 000 in 2011 (correctly calculated). The tax authorities grant a 20%  capital allowance on owned assets but allow a deduction  from taxable profits of the lease payments if the asset is leased.

The normal tax rate is 30%. There are no temporary differences other than those evident from  the information provided. Lorenz Limited satisfies the requirements to raise deferred tax assets.

REQUIRED

Prepare the 2011 journal entries with regard to the above lease agreement.

Draft the following to fully disclose the above lease and its tax effect:

- statement of comprehensive income for the year ended 31 December 2011

-Statement of financial position as at 31December 2011

- Notes to the financial statement for the year ended 31 December 2011

Note that the accounting policy note is required, whist the deferred tax note is not required. Ignore VAT.


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