ATT Examination: PAPER 2 - PART II
QUESTION 1:
1)
Y/e 30 June 2011
Trading Profit (w1)
2,000
Gains
10,000
TTP
12,000
Y/ending 30 September 2011
Trading Profit (w2)
12,750
TTP
12,750
CT Payable:
1 July 2010 - 30 March 2011 = FY10
1 April 2011 - 30 June 2011 =
FY11
12,000 x 9/12 x 21% =
1,890
12,000 x 3/12 x 20% =
600
2,490
+_
12,750 x 20% =
2,550
Total Payable = £5,040
(w1) Y/e 30 June 2011
Net profits per a/cs
Less CA's (1)
75,000 x 12/15
60,000
(33,000)
27,000
Less loss b/fwd
25,000
Adjusted profit
£12,000
(1)
CA 1 to 30 June 2011
Main Pool
B/Fwd
CA
40,000
Additions Computer
25,000
65,000
Less AIA
(2)
(25,000)
25,000
WDA at 20%
(8,000)
8,000
c/fwd
32,000
CA 2 to 30 September 2011
b/fwd
32,000
WDA at 20%
(6,400)
(6,400)
25,600
(w2) Period to 30 September 2011
2)
Net profit per a/cs 75,000 x 3/12
18,750
Less CA's
(2)
(6,400)
Adjusted profit
12,750
The accounts are due 12 months after the end of the accounting period ie 30 September 2012.
Payment is due 9 months and 1 day after the end of the accounting period.
3)
- There will be an immediate £100 penalty
- There will be a penalty of £10 p/day if still outstanding after 3 months (max £900)
- Therefore total penalties will be £1,000
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QUESTION 2:
1.
Net profit per a/cs
21,400
Add back
- general repairs (w1)
2,000
- PU motor expenses (w2)
480
- PU Light and Hear (w3)
250
- Labour (w4)
520
- Depreciation
4,650
29,300
Deduct
- Profit on sale of tractor
(5,400)
- CAs
(1,780)
Tax adjusted profit
£22,120
(w1) general provisions not allowable
(w2) motor expenses 4,000 x 12% = 480
(w3) 750 x 1/3 = 250
(w4) son does not work there so not allowable
CA
Main Pool
TWDV b/fwd
3,400
Additions
7,000
SLA
3,000
Disposals
- Tractor
- Equipment
(8,400)
(2,500)
7,900
(5,400)
CA
AIA at 100%
(7,000)
7,000
WDA at 20%
(180)
180
Balancing charge
TWD c/fwd
3,120
3
5,400
5,400
-
1,780
2.
Proceeds
50,000
Cost (w1)
(31,250)
Gain
18,750
(10,600)
8,150
8,150 at 18% =
£1,467
(w1) cost 500,000 x
50,000____
50,000 + 750,000
3.
The claim must be made before the 1st anniversary of the normal self assessment date for the
second of the tax years to which the claim relates, therefore by 31 January 2013.
It will be beneficial to make a claim as both years will be taxed on profits of £15,000. As Kevin
will have already paid the tax for 2009/10, he will be able to claim a repayment of the tax
paid, thereby creating a cash flow advantage.
The profits will actually be taxed in 2010/11 instead.
4.
If the profits for 2010/11 were 14,250 then:
14,250 x 100% =
71.25%
20,000
Adjustment: (5,750 x 3) - (20,000 x 0.75)
= 17,250 - 15,000
= 2,250
Averaged trading income 2009/10:
20,000 - 2,250 = £17,750
Averaged trading income 2010/11
14,250 + 2,250 = £16,500
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QUESTION 3:
1.
Our address
Date
Dear Lawrence,
I am writing with regard to your query in respect of what is allowable as capital and repairs.
Repairs vs Capital
When deciding if the work qualifies as a deduction for tax purposes it is necessary to determine
whether it is a repair or an improvement.
General repairs are allowable and include repairs to bring items back into working condition.
Improvements are deemed to be capital in nature and would not qualify as revenue expenditure.
They would qualify as enhancement expenditure and be deducted from the cost of the property
were it to be sold for a gain in the future.
Integral features
I note from your letter that the refurbishment would include replacing the electrical systems, the
water system and the installation of a lift and air conditioning.
All of these things are deemed "integral features" and they are allowable as capital expenditure for
tax purposes.
This means that you will be able to claim capital allowances on them. They will be classed as "special
rate expenditure" and will be allowed capital allowances at 10%.
However, you can claim 100% capital allowances up to £100,000 as part of your annual investment
allowance and the replacement of integral features would be allowable. It would be preferable to
use AIA for this purpose rather than using it against other purchases which may qualify for 20%
capital allowances.
I hope this answers your query but if you have any further questions, please let me know.
Yours Sincerely
An Advisor.
2.
As a director of the company providing the services there is a clear conflict of interest.
QUESTION 4:
1.
Dr Plant and Machinery Dep'n Expense (P+L)
CR Plant and Machinery Dep'n (B/S)
8,000
Dr Fixtures and Fittings Dep'n Expense (P+L)
CR Fixtures and Fittings Dep'n (B/S)
Dr Electrical Expenses (P+L)
Cr Accruals (B/S)
Dr Prepayment (B/S)
Cr Administration Expense
8,000
3,200
3,200
2,000
2,000
400
400
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2.
Profit + Loss Account y/e 31 December 2011
Sales
300,000
Cost of sales
(33,250)
266,750
Less
Administrative expenses
224,600
(225,000 - 400)
Loan interest
4,000
Corporation Tax
15,000
Electricity
2,000
Bad Debt
5,000
(245,600)
Net Profit
21,150
(w1) (1) Depreciation
NBV at 1 January 2011 = 60,000
75,000 x 10% =
7,500 depreciation
addition 10,000 x 10% x 6/12 = 500 depreciation
Plant and machinery d'pn =
8,000
Fixtures and Fitting NBV at January 2011 = 16,000
16,000 x 20% = 3,200
(w2) (2) Accruals
3,000 x 2/3 = 2,000
(w3) (3) Prepayments
600 x 8/12 = 400
Balance Sheet as at 31 December 2011
Fixed Assets at NBV
- Plant and Machinery
52,000
- Fixtures and Fittings
12,800
64,800
Current Assets
- Bank Account
- Debtor
- Prepayments
3,000
70,000
1,150
(750 + 400)
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Current Liabilities
- Creditors
- Accruals
(6,000)
(2,500)
(500 + 2,000)
- Corporation tax
(10,680)
(12,000 - 1,320)
_
Net current assets
54, 970
Long term liabilities > 1yr
Bank Loan
(30,000)
£24,970
As represented by:
Capital
1,000
Profit
21,150
£22,150
3.
A dividend would be treated as an expense and would be paid out the share capital
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