ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Computation of taxable total profits - Past Papers ^{14 / 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:

Tenth Ltd
(1) For the final four-month period of trading ended 31 July 2015, Tenth Ltd had a tax adjusted trading profit of £52,400. This figure is before taking account of capital allowances.

(2) On 1 April 2015, the tax written down value of the company’s main pool was £12,400. On 3 June 2015, Tenth Ltd purchased a laptop computer for £1,800.

On 31 July 2015, the company sold all of the items included in the main pool at the start of the period for £28,200 and the laptop computer for £1,300. None of the items included in the main pool was sold for more than its original cost.

(3) On 31 July 2015, Tenth Ltd sold the company’s freehold office building for £180,300. The building was purchased on 3 May 2011 for £150,100, and its indexed cost on 31 July 2015 was £164,500.

(4) During the four-month period ended 31 July 2015, Tenth Ltd let out one floor of its freehold office building which was always surplus to requirements. The floor was rented at £1,200 per month, but the tenant left owing the rent for July 2015 which Tenth Ltd was unable to recover. The total running costs of the office building for the four-month period ended 31 July 2015 were £6,300, of which one-third related to the let floor. The other two-thirds of the running costs have been deducted in calculating Tenth Ltd’s tax-adjusted trading profit of £52,400.

(5) During the four-month period ended 31 July 2015, Tenth Ltd made qualifying charitable donations of £800.

Required:
(a) Calculate Tenth Ltd’s taxable total profits for the four-month period ended 31 July 2015. (7 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.

Query 3 – Capital allowances
There are two issues here:
(1) E-Commerce plc purchased four motor cars during the year ended 31 March 2014, and all four motor cars have been included in the plant and machinery main pool. Details are as follows:

(2) Four years ago, E-Commerce plc purchased computer equipment on which a short-life asset election has been made. For the year ended 31 March 2014, the writing down allowance claimed on this equipment was £1,512, calculated at the rate of 18%. However, the computer equipment was actually scrapped, with nil proceeds, on 10 December 2013.

Query 4 – Property business profit

There are two issues here:
(1) E-Commerce plc has claimed a deduction for repairs of £95,300 in respect of a warehouse which was purchased on 21 May 2013. The warehouse was purchased in a dilapidated state, and could not be let until the repairs were carried out. This fact was represented by a reduced purchase price.

(2) E-Commerce plc did not receive the rent due of £16,200 in respect of this warehouse for the quarter ended 31 May 2014 until 1 April 2014. None of this amount has been taken into account in calculating the property business profit for the year ended 31 March 2014.

Query 5 – Loan interest receivable
The accrual at 31 March 2014 has been calculated at £4,800, but because of falling interest rates the accrual should actually be £3,500.

Other information
For the year ended 31 March 2013, E-Commerce plc had augmented profits of £1,360,000, and has forecast that its augmented profits for the year ended 31 March 2015 will exceed £2,000,000.

E-Commerce plc does not have any associated companies.

Required:
Calculate taxable total profits.