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Section C: Q34

Specimen exam

Q34 Section C

This scenario relates to two requirements.

On 6 April 2019, Simon commenced employment with Echo Ltd.

On 1 January 2020, he commenced in partnership with Art, preparing accounts to 30 April.

The following information is available for the tax year 2019-20:

(1) During the tax year 2019-20, Simon was paid a gross annual salary of £23,700.

(2) Throughout the tax year 2019-20, Echo Ltd provided Simon with living accommodation.

The company had purchased the property in 2006 for £89,000, and it was valued at £143,000 on 6 April 2019.

The annual value of the property is £4,600.

The property was furnished by Echo Ltd during March 2019 at a cost of £9,400.

The living accommodation is not job related.

(3) On 1 December 2019, Echo Ltd provided Simon with an interest-free loan of £84,000, which he used to purchase a holiday cottage.

(1) The partnership’s tax adjusted trading profit for the four-month period ended 30 April 2020 is £29,700.  This figure is before taking account of capital allowances.

(2) The only item of plant and machinery owned by the partnership is a motor car which cost £18,750 on 1 February 2020.
 The motor car has a CO2 emission rate of 155 grams per kilometre. It is used by Art, and 40% of the mileage is for private journeys.

(3) Profits are shared 40% to Simon and 60% to Art. This is after paying an annual salary of £6,000 to Art.

Property income
(1) Simon owns a freehold house which is let out furnished.

The property was let throughout the tax year 2019-20 at a monthly rent of £660.

(2) During the tax year 2019-20, Simon paid council tax of £1,320 in respect of the property.

He also replaced the property's washing machine during March 2020.

The old washing machine was sold for £70, being replaced by a washer-dryer costing £970.

The cost of a similar washing machine would have been £730.

(b) State TWO advantages for the partnership of choosing 30 April as its accounting date rather than 5 April.(2 marks)

(15 marks)