ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Allowable expenditure in calculating T.A.T.P. - Past Papers ^{1 / 14}

Mable is a serial entrepreneur, regularly starting and disposing of businesses. On 31 July 2015, Tenth Ltd, a company owned by Mable, ceased trading. On 1 October 2015, Eleventh Ltd, another company owned by Mable, commenced trading. The following information is available:

Eleventh Ltd
(1) Eleventh Ltd’s operating profit for the six-month period ended 31 March 2016 is £122,900. Depreciation of £2,580 and amortisation of leasehold property of £2,000 (see note (2) below) have been deducted in arriving at this figure.

(2) On 1 October 2015, Eleventh Ltd acquired a leasehold office building, paying a premium of £60,000 for the grant of a 15-year lease. The office building was used for business purposes by Eleventh Ltd throughout the six-month period ended 31 March 2016.

(3) On 1 October 2015, Eleventh Ltd purchased two motor cars. The first motor car cost £12,600, and has a CO2 emission rate of 110 grams per kilometre. This motor car is used as a pool car by the company’s employees.

The second motor car cost £13,200, and has a CO2 emission rate of 60 grams per kilometre. This motor car is used by Mable, and 45% of the mileage is for private journeys.

(4) On 1 October 2015, Mable made a loan of £100,000 to Eleventh Ltd at an annual interest rate of 5%. This is a commercial rate of interest, and no loan repayments were made during the period ended 31 March 2016. The loan was used to finance the company’s trading activities.

Required:
(b) Calculate Eleventh Ltd’s tax adjusted trading profit for the six-month period ended 31 March 2016. (8 marks)

Note 2 – Lease of motor car

The lease is in respect of a motor car with CO2 emissions of 189 grams per kilometre.

Note 3 – Professional fees

Professional fees are as follows:

Note 4 – Other expenses

Other expenses are as follows:

Additional information

Plant and machinery

On 1 January 2015, the tax written down values of Jump Ltd’s plant and machinery were as follows:

The original cost of motor car [1] was added to the special rate pool when it was purchased, and the original cost of motor car [2] was added to the main pool when it was purchased.

Required:
(a) Calculate Jump Ltd’s tax adjusted trading loss for the three-month period ended 31 March 2015.

Notes:

1. Your computation should commence with the operating loss figure of £144,700, and should list all of the items referred to in notes (1) to (4), indicating by the use of zero (0) any items which do not require
adjustment.

2. You should assume that the company claims the maximum available capital allowances. (10 marks)

Note 2 – Impairment loss
On 31 March 2015, Retro Ltd wrote off an impairment loss of £1,600 relating to a trade debt. This was in respect of an invoice which had been due for payment on 10 November 2014.

Note 3 – Leasing costs
The leasing costs of £4,400 are in respect of a motor car lease which commenced on 1 April 2014. The leased motor car has CO2 emissions of 145 grams per kilometre.

Note 4 – Other expenses
The figure of £205,160 for other expenses includes a fine of £5,100 for a breach of health and safety regulations, and legal fees of £4,860 in connection with the defence of Retro Ltd’s internet domain name. The remaining expenses are all fully allowable.

Note 5 – Interest payable
The interest payable is in respect of the company’s 5% loan notes which were repaid on 31 July 2014. Interest of £9,600 was paid on 31 July 2014, and an accrual of £3,200 had been provided for at 1 April 2014. The loan notes were issued in order to finance the company’s trading activities.

Additional information
Plant and machinery
On 1 April 2014, the tax written down value of the plant and machinery main pool was £39,300.
The following vehicles were purchased during the year ended 31 March 2015:

Required:
(a) Calculate Retro Ltd’s tax adjusted trading loss for the year ended 31 March 2015.

Note: Your computation should commence with the loss before taxation figure of £120,000, and should also list all of the items referred to in notes (1) to (5), indicating by the use of zero (0) any items which do not require adjustment. (9 marks)

You are a trainee Chartered Certified Accountant, and your firm has recently completed its audit of E-Commerce plc’s financial statements for the year ended 31 March 2014. The company runs an internet-based retail business.

E-Commerce plc prepared its own corporation tax computations for the year ended 31 March 2014, and your colleague has completed your firm’s tax audit of these figures. E-Commerce plc’s original corporation tax computation, along with references to your colleague’s queries, is as follows:

E-Commerce plc – Corporation tax computation for the year ended 31 March 2014

Your colleague has raised some queries in regard to E-Commerce plc’s corporation tax computation. Apart from any corrections arising from your colleague’s queries, the corporation tax computation prepared by E-Commerce plc does not contain any errors.

Query 1 – Legal fees
E-Commerce plc has treated all of the company’s legal expenditure as allowable when calculating its operating profit. However, legal expenses include the following:

(i) Legal fees of £80,200 in connection with an issue of £1 preference shares.

(ii) Legal fees of £92,800 in connection with the issue of loan notes. The loan was used to finance the company’s trading activities.

(iii) Legal fees of £14,900 in connection with the renewal of a 99-year lease of property.

(iv) Legal fees of £4,700 in connection with an action brought against a supplier for breach of contract.

(v) Legal fees of £8,800 in connection with the registration of trade marks.

Query 2 – Deduction for lease premium
The amount assessed on the landlord has been correctly calculated, but the life of the lease should be 15 years and not the 12 years used by E-Commerce plc. The lease commenced on 1 April 2013.

Required:
Calculate allowable / disallowable expenditure.

The original cost of motor car [3] has previously been added to the main pool, and the original cost of motor car [4] has previously been added to the special rate pool.

Required:
Calculate Greenzone Ltd’s tax adjusted trading profit for the year ended 31 March 2013.

Note: Your computation should commence with the operating profit figure of £239,700, and should also list all of the items referred to in notes (1) and (2), indicating by the use of zero (0) any items that do not require adjustment. (10 marks)

Information needed for this question:

Working: Capital Allowances are £18,409