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15/01/2024

How to think through a deferred liability

A deferred tax liability is recognised when you have a taxable temporary difference.

You have a taxable temporary difference where you will pay more tax in future periods.

When the accounting carrying amount of an asset is higher than its tax base

Then you have a taxable temporary difference.

P.S Why do we have a taxable difference?

21/11/2023

Hello ITC Candidate

I invite you to…

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Where you will… Train like a World Champion!
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- Get access to strategies that separates a pass from a fail.

Here’s What You Get:
- 10 days of 60-min live classes
- Weekly 1:1 60-min consultations (until your exam)
- Mock exam review and feedback (2 weeks before your exam)
- Access to video recordings of 2 past ITC
- Access to selected CTA videos (MAC & FAC)

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3 already joined. 7 remaining.

21/11/2023

ITC Programs:

1. 2 ITC Past Exams (on-demand videos) - R799

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18/11/2023

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29/08/2023

Build Exam Confidence!

Pass your MAC3702 Exam stress-free.

Get access to 3 past exam questions with our video course.

Starts 1st September.

7 spots remaining.

23/08/2023

How to Calculate WACC - weightings

When calculating WACC, there are 3 things that are needed:

1. sources of finance
2. cost of finance
3. weighting

Weighting

The weighting is the company’s target capital structure.

A target (or optimal) capital structure is the point where WACC is at its lowest.

If the target capital structure is given, then use it (unless told otherwise).

If the target capital structure is not given,

then calculate it.

That’s where the market values come in.

It’s assumed that the company’s current capital structure,

but at market value

is the target capital structure.

Therefore we calculate market values when calculating WACC.

In tomorrow’s lesson, I will be sharing how to think through market values for WACC.

22/08/2023

How to Calculate WACC - cost of finance

When calculating WACC, there are 3 things that are needed:

1. sources of finance
2. cost of finance
3. weighting

Cost of Finance

When calculating the cost of finance, think through it like this:

Ordinary Share Capital

Tell yourself that there are 3 methods to calculate the cost of equity for ordinary share capital.

The 3 methods are:

1. capital asset pricing model
2. dividend growth model
3. bond yield plus a risk premium

Preference Shares and Debt

The cost of finance for preference shares and debt is calculated the same.

There are only 2 differences:

1. the payment is interest for debt and dividends for preference shares.
2. debt has an interest deduction while preference shares do not.

Ask yourself whether you’re dealing with a redeemable instrument or a non-redeemable instrument.

IF: it’s a non-redeemable instrument

THEN: use the perpetuity formula

IF: it’s a redeemable instrument

THEN: use the financial calculator (those 5 buttons)

That’s it.

Tomorrow we discuss the weightings.

21/08/2023

How to Calculate WACC - sources of finance

When calculating WACC, there are 3 things that are needed:

1. sources of finance
2. cost of finance
3. weighting

Sources of Finance

The source of finance is the company’s capital structure.

The company’s capital structure is made up of all long-term sources of finances.

The long-term sources of finance are made up of two items:

1. long-term interest-bearing debt
2. equity

Examples include:

- ordinary share capital (equity)
- preference share capital (equity or debt)
- debenture (debt)
- bonds (debt)
- long-term loans (debt)

Important to note:

- operational and working capital finance does not form part of long-term finance.
- bank overdraft is usually operational finance and therefore not part of the long-term finance.

Tomorrow we cover the cost of finance.

20/08/2023

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Buy MAC3702 Exam Success Accelerator - Paystack 20/08/2023

Pass Your MAC3702 Exam Stress-Free!

An online exam prep course working through 3 past exam papers

That's 300 worth of marks!

You'll learn how to:

1. apply theory to answer any question that comes your way

2. structure your answer to score the maximum amount of marks

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Buy MAC3702 Exam Success Accelerator - Paystack Pass Your MAC3702 Exam Stress-Free!I work through 3 past exams with you.That's 300 worth of marks!You'll learn how to:apply theory to answer any question that comes your waystructure your answer to score the maximum amount of marksperform comparisons for each topic so that you cover almost every…

02/08/2023

The 5 amounts included in the lease liability

A lease liability is recognised in the books of the lessee.

A lease liability must be recognised and measured initially at the commencement date.

The lease liability is the present value of the lease payments that are not paid at the commencement date.

Put another way, the lease liability is the present value of the lease payments from the commencement date until the end of the lease term.

The 5 amounts included in the lease liability:

1. fixed lease payments (minus incentives)
2. variable lease payments (that depends on an index)
3. residual value guarantee (payable to lessor)
4. price of a purchase option (if lessee intends to exercise it)
5. penalty for early termination (if lessee intends to terminate early)

In the next lesson I will share how to calculate the present value of the lease liability.

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01/08/2023

How to calculate a right-of-use asset in 4 steps

A right of use asset is recognised in the books of the lessee.

A right of use asset (ROUA) must be recognised and measured initially at the commencement date.

The amount at which the lease is measured is determined in 4 simple steps:

Step 1:

start with the amount of the lease liability at initial recognition

Step 2:

add lease payments made at or before the commencement date

Step 3:

add initial direct costs incurred by the lessee

Step 4:

add a provision for restoration/dismantle

Put another way…

[+] lease liability at initial recognition

[+] lease payments made at or before commencement date

[+] initial direct costs incurred by the lessee

[+] provision for restoration/dismantle

[=] ROUA at initial recognition

Timeline photos 31/07/2023

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29/07/2023

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27/07/2023

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26/07/2023

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5 more spots.

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I work through 3 past APC exam case studies with you.

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Starts August.
Registration closes Friday.

7 spots limit.
R3997

25/07/2023

3 steps to calculate goodwill

Goodwill is the excess amount paid for the fair value of the net assets of the company being acquired.

Here are the 3 steps to determining goodwill:

1. determine the consideration

2. calculate non-controlling interest (NCI)

3. determine the fair value of the net identifiable assets (FVNIA)

Goodwill = consideration + NCI - FVNIA

In the next few posts I will explain how to determine all 3 steps above.

24/07/2023

Group Accounting Lessons for aspiring CAs - 4 steps of the acquisition method

IFRS 3 deals with the accounting treatment of a business combination at acquisition.

The method of accounting for a business combination is known as the acquisition method.

The acquisition methods involves 4 steps:

1. identifying the acquirer

2. determining the acquisition date

3. recognising and measuring the identifiable assets, liabilities assumed, and non-controlling interest

4. recognising and measuring goodwill or bargain purchase gain

There you have it.

Use this thought process every time you deal with a business combination scenario.

03/07/2023

How to calculate the right-of-use assets in 4 steps

A right-of-use asset (ROUA) is recognised on initial recognition by the lessee once a lease commences.

The amount at which the lease is measured is determined in 4 simple steps:

1/Take the amount of the lease liability at the initial recognition

2/Add any lease payments made at or before the commencement date

3/Add any initial direct costs incurred by the lessee

4/Add any provision for restoration and/or dismantle

Put another way…

ROUA = lease liability + prior lease payments + initial direct costs + provision for restoration

02/07/2023

Competently Pass Your APC Exam Stress-Free!

- Learn how to answer exam questions
- Learn how to identify triggers and what to look out for
- Learn how to prepare for "on-the-day information"

I work through 3 past APC exam case studies with you.

You work through 1 past APC exam case study and I provide feedback.

Starts August.
Registration closes Friday.

7 spots limit.
R3500

30/06/2023

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30/06/2023

MAC3702 Exam Prep - Oct/Nov 2023

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30/06/2023

MAC3701 Exam Prep - Oct/Nov 2023

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Starts next week.

Runs from July to mid-September.

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10 spots. Registration closes Wednesday.

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27/05/2023

Avoid Repeating CTA 2

2 SPOTS REMAINING.

With the help of the right guide, you can make sure that you do well in your exams and get that qualification! (You're almost there).

Join the CTA 2 Mastermind

I help you with breaking down each topic, ensuring you understand the core concepts and how to apply them to different type of requireds.

I also show you how to use only 3 questions per topic to answer every question that comes your way.

I work alongside you, personally. Just like a personal trainer!

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Im opening up to 4 more.

This online mastermind will give you access to:
- a personal guide/tutor
- study tips and exam technique
- how to study properly with 3 to 5 questions per topic
- live weekly classes
- weekly 1:1 consultations
- test 3 & 4 prep
- 1 exam prep class per module
- 1 mock exam per module
- MAC, FAC, TAX & AUE

Started: 10 May till final exams
Spot: limited to 8 CTA 2 students
Cost: R2500

Whatsapp 0784874902.

Faeez from Eduhance

26/05/2023

Avoid Repeating CTA 2

With the help of the right guide, you can make sure that you do well in your exams and get that qualification! (You're almost there).

Join the CTA 2 Mastermind

I help you with breaking down each topic, ensuring you understand the core concepts and how to apply them to different type of requireds.

I also show you how to use only 3 questions per topic to answer every question that comes your way.

I work alongside you, personally. Just like a personal trainer!

Join now. I'm working with 8 CTA 2 students already.

Im opening up to 4 more.

This online mastermind will give you access to:
- a personal guide/tutor
- study tips and exam technique
- how to study properly with 3 to 5 questions per topic
- live weekly classes
- weekly 1:1 consultations
- test 3 & 4 prep
- 1 exam prep class per module
- 1 mock exam per module
- MAC, FAC, TAX & AUE

Started: 10 May till final exams
Spot: limited to 8 CTA 2 students
Cost: R2500

Whatsapp 0784874902.

Faeez from Eduhance

11/04/2023

Special Offer for 25 CTA students. (for April registrations only)

Get access to:
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3. test prep classes + exam technique to finish within time

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Content from test 2 to test 4.

April registrations only. 25 spots only.

Whatsapp me on 0794874902

05/04/2023

2 methods to calculate market value for ordinary share capital

When calculating the market value for ordinary share capital for purposes of WACC, you have 2 methods available:

1. Market capitalisation method
2. Dividend/Gordon growth method

Market Capitalisation Method

MV = number of shares in issue x share price

Important:
- we interested in shares issued and not authorised.

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Signup to our free CTA/3rd Year Video Course.

31/03/2023

FAC lessons for CTA & 3rd Yr students - understanding taxable temporary differences

A deferred tax liability is recognised when a temporary difference is a taxable temporary difference.

Therefore it is important to understand what is a taxable temporary difference.

Breaking down the definition of a taxable temporary into digestible chunks would look like this… a taxable temporary difference will result in:
- Taxable amounts
- In determining tax profit (or loss)
- In future periods
- When recovering an asset OR
- When settling a liability

Here is an approach to think about temporary differences and determine whether it’s a taxable or deductible temporary difference.

Let’s say: A company, at the end of the current year, has a machine at a carrying amount of R1 000. The tax base is R800. Determine the deferred tax consequences.

THINKING APPROACH:

Accounting Perspective:
We have an asset of R1 000. That means we expect future economic benefits (income or savings) of R1 000.

Hence, in future periods, our profit would include an income R1 000.

The depreciation charge, in future periods, would be R1 000.

Therefore, in future periods for accounting profit, the impact on profit would be zero.

Tax Perspective:
Since there is an accounting income of R1 000, SARS would also recognise an income of R1 000.

However, in future periods, SARS will only allow a wear & tear deduction of R800.

Therefore, in future periods for tax profit, the impact would be a profit (taxable income) of R200.

So… in future periods:
- Accounting profit is zero.
- Tax profit is R200.

Therefore tax profit is MORE THAN accounting profit (as a result of this temporary difference).

Because the temporary difference resulted in taxable amounts in future periods.

We have a taxable temporary difference.

Therefore a deferred tax liability.

Some Notes:
- SARS refers to the tax authority.
- Deferred tax is all about future tax consequences. That is, tax implications of future periods.

30/03/2023

MAC lessons for CTA & 3rd Yr students - calculating growth rates

There are 3 methods to determine a growth rate.
1. Linear growth formula
2. Compound growth formula
3. Sustainable growth rate formula

Linear growth formula:
g = (current period/prior period) - 1

This formula is used when you’re given the numbers (e.g. dividends or share price) for two consecutive years.

For example you’re told that the current dividend is R110 and last year’s dividend was R100 and that the growth rate for the foreseeable future will be the same. In this case the growth rate is 10% [(110/100) - 1]

Compound growth formula:
g = (latest period/earliest period)^(1/n) - 1

This formula is used when you’re given the numbers (e.g. dividends or share price) for a number of years. Let's say, 5 years.

For example you’re given dividend payments for the last 5 years and that the growth rate for the foreseeable future will be the same.

Let’s say the earliest dividend was R100 and the latest dividend R110, the growth rate would be calculated as follows: [(110/100)^(¼) - 1] which equals 2%.

Note the following:
^ is for exponent. That is “to the power of…”.
n is 4. We were given 5 years. That equates to 4 periods. n represents the number of periods.

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