Question 1c

On 6 April 2011 Flick Pick, aged 23, commenced employment with 3D Ltd as a film critic. On 1 January 2012 she commenced in partnership with Art Reel running a small cinema, preparing accounts to 30 April. The following information is available for the tax year 2011–12:

(1) During the tax year 2011–12 Flick was paid a gross annual salary of £23,700.

(2) Throughout the tax year 2011–12 3D Ltd provided Flick with living accommodation. The company had purchased the property in 2002 for £89,000, and it was valued at £144,000 on 6 April 2011. The annual value of the property is £4,600. The property was furnished by 3D Ltd during March 2011 at a cost of £9,400.

(1) The partnership’s tax adjusted trading profit for the four-month period ended 30 April 2012 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 that cost £15,000 on 1 February 2012. The motor car has a CO2 emission rate of 190 grams per kilometre. It is used by Art, and 40% of the mileage is for private journeys.

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

Property income
(1) Flick owns a freehold house which is let out furnished. The property was let throughout the tax year 2011–12 at a monthly rent of £660.

(2) During the tax year 2011–12 Flick paid council tax of £1,320 in respect of the property, and also spent £2,560 on replacing damaged furniture.

(3) Flick claims the wear and tear allowance.

Value added tax (VAT)
(1) The partnership voluntarily registered for VAT on 1 January 2012, and immediately began using the flat rate scheme to calculate the amount of VAT payable. The relevant flat rate scheme percentage for the partnership’s trade is 12%.

(2) For the quarter ended 31 March 2012 the partnership had standard rated sales of £59,700, and these were all made to members of the general public. For the same period standard rated expenses amounted to £27,300. Both figures are stated inclusive of VAT.

(3) The partnership has two private boxes in its cinema that can be booked on a special basis by privileged customers. Such customers can book the boxes up to two months in advance, at which time they have to pay a 25% deposit. An invoice is then given to the customer on the day of the screening of the film, with payment of the balance of 75% required within seven days. For VAT purposes, the renting out of the cinema boxes is a supply of services.

(c) List the advantages and disadvantages for the partnership of choosing 30 April as its accounting date rather than 5 April. (4 marks)

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