Page 111 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes RECONCILIATION
Cost price of stock on transaction date ($100 000 x 6,4900)
Rands paid to purchase $100 000 on 31-05-1998
($100 000 x 6,4900) Net loss
Note:
PN 4/1999
R649 000 R649 000
R nil
The premium on the forward exchange contract is included in the cost price of the stock. The premium is therefore indirectly allowed as a deduction for income tax purposes in terms of section 11(a).
5.3 The transaction was recorded on the transaction date at the spot rate, for accounting purposes. At the end of the nancial year (date of translation) the debt was translated at the forward rate, for accounting purposes.
Accounting recording of the transaction Dr Purchases (Stock)
Cr Creditor
($100 000 x 6,3700)
Dr Premium on forward exchange contract
Cr Creditor
[$100 000 x (6,4900 – 6,3700)]
The forward exchange contract was not accounted for separately.
R637 000
R12 000
R637 000
R12 000
YEAR END 28-02-1998
Debt
Ruling exchange rates:
Transaction date (01-12-1997) Date of translation (28-02-1998)
Exchange difference:
[(6,3700 – 6,4900) x $100 000]
Note:
6,3700 6,4900
R12 000 loss
This exchange difference (loss) of R12 000 complies with the provisions of section 24I(5) and the premium portion thereof (in this case the full exchange difference) must be spread on a day-to-day basis over the period of the forward exchange contract.
Portion of the exchange difference allocated to the 1998 year of assessment (R12 000 x 3 ÷ 6)
Forward exchange contract
Ruling exchange rates:
Transaction date (01-12-1997)
Date of translation
Exchange difference:
[(6,4900 – 6,4900) x $100 000]
6,4900 6,4900
R6 000 loss
R nil
SAIT CompendIum oF TAx LegISLATIon VoLume 2
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