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Question 1b i

Your manager has had a meeting with Farina and Lauda, potential new clients, who are partners in the FL Partnership.
The memorandum recording the matters discussed, together with an email from your manager, is set out below.

Memorandum



To           The files
From      Tax manager
Date       5 December 2013
Subject   FL Partnership

Background

Farina and Lauda began trading as the FL Partnership on 1 May 2008. Accounts have always been prepared to 31 March each year. They are each entitled to 50% of the revenue profits and capital profits of the business.

On 1 March 2014, the whole of the FL Partnership business will be sold as a going concern to JH plc, a quoted trading company. The consideration for the sale will be a mixture of cash and shares. Capital gains tax relief on the transfer of a business to a company (incorporation relief) will be available in respect of the sale.

The sale of the business on 1 March 2014
The assets of the FL Partnership business have been valued as set out below. All of the equipment qualified for capital allowances.

Value Cost
£ £
Goodwill 1,300,000 Nil
Inventory and receivables 30,000 30,000
Equipment (no item to be sold for more than cost) 150,000 200,000
Total 1,480,000

Email from your manager


I want you to prepare a memorandum for the client file in respect of the following:

(i) Capital allowances
A DETAILED explanation of the calculation of the capital allowances of the FL Partnership for its final trading period ending with the sale of its equipment to JH plc for £150,000 on 1 March 2014.

Tax manager


Required: 
(b) Prepare the memorandum requested in the email from your manager. The following marks are available.
(i) Capital allowances. (5 marks)

Note: Ignore value added tax (VAT).
Professional marks will be awarded in part (b) for the overall presentation of the memorandum, the provision of relevant advice and the effectiveness with which the information is communicated. (4 marks)