ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Property business profits/losses - for Companies - Past Papers ^{4 / 14}

Lucky Ltd was incorporated on 20 July 2014, and commenced trading on 1 December 2014. The following information is available for the four-month period 1 December 2014 to 31 March 2015:

(1) The operating profit for the four-month period ended 31 March 2015 is £532,600. Advertising expenditure of £4,700 (incurred during September 2014), depreciation of £14,700, and amortisation of £9,000 have been deducted in arriving at this figure.

The amortisation relates to a premium which was paid on 1 December 2014 to acquire a leasehold warehouse on a 12-year lease. The amount of premium assessed on the landlord as income was £46,800. The warehouse was used for business purposes by Lucky Ltd throughout the period ended 31 March 2015.

Required:
What amount of lease premium will be allowed to be deducted from trading profit?

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 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.

Required:
Calculate property business profits for the year ended 31/03/2014.

Wind Ltd
(1) The operating profit for the year ended 31 March 2014 is £62,900. Amortisation of £5,000 has been deducted in arriving at this figure. The amortisation relates to a premium which was paid on 1 August 2009 to acquire a leasehold office building on a 20-year lease. The amount of premium assessed on the landlord as income was £68,200. The office building was used for business purposes by Wind Ltd throughout the year ended 31 March 2014.

Required:
What amount of premium can be deducted from trading profits in the year ended 31/03/2014?

Leasehold property
On 1 January 2013, Softapp Ltd acquired a leasehold office building, paying a premium of £100,000 for the grant of a ten-year lease. The office building was used for business purposes by Softapp Ltd throughout the period 1 January to 31 March 2013.

Required:
 What amount of premium can be deducted from trading profits in the year ended 31/03/2013?

Note 3 – Income from property
Since 1 November 2012, Softapp Ltd has let out one floor of a freehold office building which is surplus to requirements. The income from property figure of £36,700 is made up of the following income and expenditure:

Required:
What are the property business profits for the year ended 31/03/2013?