Possible tax treatments of the transfer of accounting provisions during the sale of a business and subsequent tax considerations

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dc.contributor.advisor Van Schalkwyk, C. J.
dc.contributor.author Kroukamp, Susan en_ZA
dc.contributor.other University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Accountancy.
dc.date.accessioned 2008-07-16T10:01:43Z en_ZA
dc.date.accessioned 2010-07-09T11:08:02Z
dc.date.available 2008-07-16T10:01:43Z en_ZA
dc.date.available 2010-07-09T11:08:02Z
dc.date.issued 2006-12 en_ZA
dc.identifier.uri http://hdl.handle.net/10019.1/3336
dc.description Thesis (MAcc (Accountancy))--University of Stellenbosch, 2006.
dc.description.abstract The potential buyer of a business evaluates the attractiveness of the transaction by considering the financial status of the business being sold. In determining the financial status of a business it is more important to determine the nature of the assets and liabilities recorded on the balance sheet rather than the mere existence thereof. Included in the liabilities are accounting provisions recorded in terms of the Generally Accepted Accounting Practice (GAAP) to reflect a fair representation of the financial status. Although these provisions are made for accounting purposes, they cannot necessarily be deducted under the terms of the Income Tax Act, no 58 of 1962. The tax deductibility of accounting provisions has long been a potential contention when a business is sold. The Income Tax Act has specific sections that must be applied in determining the deductibility of accounting provisions, for example, section 11(a), which is the general deduction formula; section 23(g), which prohibits expenses not laid out for the purposes of trade; and section 23(e), which does not allow a deduction when a reserve fund is created (for example a leave pay provision). In conducting this study, seven types of accounting provision generally recorded by businesses were identified: the bonus provision, leave pay provision, warranty provision, settlement discount and incentive-rebate provision, post employment provision, retrenchment cost provision and other provisions. These provisions are discussed in view of their possible income tax deductibility, and relevant case studies were identified to confirm the possible deductibility of these accounting provisions. In this study, the transfer of accounting provisions during the sale of a business is considered for the purposes of both the buyer and seller. The tax implications for the buyer and seller are then evaluated, as well as the subsequent treatment of the accounting provisions for the purposes of the buyer. Because the wording of the purchase contract is extremely important when a business is acquired, three examples of the wording of a purchase contract are discussed as well as the income tax implications thereof. The extent of the advice given by a tax practitioner will depend on the allegiance of the practitioner (either for the buyer or seller) and will determine how the contract will be concluded. In conclusion a tax practitioner would want to assist his client to obtain the most effective tax position for the transaction and therefore each purchase contract must be reviewed on its own set of facts. en_ZA
dc.language.iso en en_ZA
dc.publisher Stellenbosch : University of Stellenbosch
dc.subject Accounting provisions en_ZA
dc.subject Sale of business enterprises -- Law and legislation -- South Africa en
dc.subject Business enterprises -- Purchasing -- Law and legislation -- South Africa en
dc.subject Tax accounting -- South Africa en
dc.subject Income tax deductions -- South Africa en
dc.subject Dissertations -- Accountancy en
dc.subject Theses -- Accountancy en
dc.subject Assignments -- Accountancy en
dc.title Possible tax treatments of the transfer of accounting provisions during the sale of a business and subsequent tax considerations en_ZA
dc.type Thesis en_ZA
dc.rights.holder University of Stellenbosch


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