Page 125 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes Premium portion:
= [(Spot rate on the date when the forward exchange
contract is entered into) (Forward rate)] x Foreign currency amount
= [5,4500 – 5,4900] x $100 000 = R4 000
Portion of the premium deductible on 28-02-1998 [R4 000 x (nil months ÷ 4 months)]
Portion of the exchange difference which is not the premium portion
(R9 000 – R4 000)
Note:
The portion of the exchange difference which is not a premium represents the exchange gain or exchange loss which arose during the period for which the loan, advance or debt was not hedged by the forward exchange contract. In this case the period from 01-01-1998 (5,4000) to 28-02-1998 (5,4500) with a consequential loss of R5 000 [(5,4000 – 5,4500) x $100 000].
R4 000 loss
5,4900 5,5300
R4 000 loss
5,4900 5,5300
R4 000 gain
R9 000 loss R540 000
R549 000 R 9 000
PN 4/1999
Forward exchange contract
Ruling exchange rates:
Transaction date (28-02-1998) 5,4900
Date of translation (28-02-1998) 5,4900
Exchange difference:
[(5,4900 – 5,4900) x $100 000]
YEAR END 28-02-1999 Debt
Portion of the premium portion of the exchange diference on 28-02-1998 allocated to the 1999 year of assessment
(R4 000 x 4 / 4)
Debt
Ruling exchange rates:
Date of previous translation (28-02-1998) Date of realisation (30-04-1998)
Exchange difference:
[(5,4900 – 5,5300) x $1000 000]
Forward exchange contract
Ruling exchange rates:
Date of previous translation (28-02-1998) Date of realisation (30-04-1998)
Exchange difference:
[(5,4900 – 5,5300) x $100 000]
NET TAX RESULT
(-R5 000 – R4 000 – R4 000 + R4 000)
RECONCILIATION
Cost price of stock on transaction date ($100 000 x 5,4000)
Rands paid to purchase $100 000 on 30-04-1998 ($100 000 x 5,4900)
Net loss
R nil
R nil R5 000 loss
SAIT CompendIum oF TAx LegISLATIon VoLume 2
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