Section C: Q36

Specimen exam

Q36 Section C

The following scenario relates to two requirements.

You are a trainee accountant and your manager has asked you to correct a corporation tax computation which has been prepared by the managing director of Naive Ltd.

The corporation tax computation is for the year ended 31 March 2019 and contains a significant number of errors:

Naive Ltd – Corporation tax computation for the year ended 31 March 2019

Trading profit (working 1) 372,900
Loan interest received (working 2) 32,100
Corporation tax (405,000 at 19%) 76,950

Working 1 – Trading profit

Profit before taxation 274,530
Depreciation 15,740
Donations to political parties 400
Qualifying charitable donations 900
Accountancy 2,300
Legal fees in connection with the issue of loan notes (the loan was used to finance the company's trading activities) 5,700
Entertaining suppliers 3,600
Entertaining employees 1,700
Gifts to customers (pens costing £40 each and displaying Naive Ltd's name) 920
Gifts to customers (food hampers costing £45 each and displaying Naive Ltd's name) 1,650
Capital allowances (working 3) 65,460
Trading profit 372,900

Working 2 – Loan interest received

Loan interest receivable 32,800
Accrued at 1 April 2018 10,600
Accrued at 31 March 2019 (11,300)
Loan interest received 32,100

The loan was made for non-trading purposes.

Working 3 – Capital allowances

Main pool £ Motor car £ Special rate pool £ Allowances £
Written down value (WDV) brought forward 12,400 13,600
Machinery 42,300
Motor car [1] 13,800
Motor car [2] 14,000
Annual investment allowance (AIA) (68,500) 68,500
Disposal proceeds (9,300)
Balancing allowance (4,300) (4,300)
Writing down allowance (WDA) – 18% (2,520)
x 50%
WDV carried forward 0 11,480
Total allowances 65,460

(1) Motor car [1] has a CO2 emission rate of 110 grams per kilometre.

(2) Motor car [2] has a CO2 emission rate of 155 grams per kilometre. This motor car is used by the sales manager and 50% of the mileage is for private journeys.

(3) All of the items included in the special rate pool at 1 April 2018 were sold for £9,300 during the year ended 31 March 2019. The original cost of these items was £16,200.

The managing director of Naive Ltd understands that the company will have to file its self-assessment corporation tax returns online, and that the supporting accounts and tax computations will have to be filed using the inline eXtensible Business Reporting Language (iXBRL).

The managing director is concerned about how the company will be able to produce documents in this format.

(b) Explain the options available to Naive Ltd regarding the production of accounts and tax computations in the iXBRL format.(3 marks)

(15 marks)