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Loan interest (Note 17) 8.300 72.800 Profit before taxation 1,076,290 Hi Spirit Limited is a UK resident company. The company trades in a wide range of musical instruments and all goods are taxable unless stated otherwise. Hi Spirit Limited buys instruments from a local manufacturer for sale in England & Wales. Hi Spirit Limited does not export their products overseas. Hi Spirit Limited prepares its accounts to 31 March each year. The detailed statement of profit or loss for the year ended 31 March 2020 is given below: Notes: Note#1. High Spirit Limited Hi Spirit Limited distributes musical instruments through 8 stores located across the England and Wales, of those 6 stores are owned by the company and remaining 2 are rented premises. 6 . Company has recruited 83 employees for purchase, and sales of its products including those in f 13,647,000 Sales revenues, net (Note 2) Cost of goods sold (Note 3) Gross profit _(10.214.720) 3,432,280 Operating expenses: Rent expenses (Note 4) its main office for administration. Note#2. Sales revenues, net Monthly sales for the year ending on 31 March 2020 are given below. All sales are standard- rated. Most of the sales are on cash except those made to its customers in entertainment . industry. Credit sales offer 3% discount for a prompt payment (made within 15 days of the issuance of the invoices). Sales figures in below given table are before any prompt payment discount 115.000 68.610 Repairs and renewals (Note 5) General & administrative (Note 6) 900.000 250.000 Depreciation Fees, fines and charges (Note 7)_ 54,650 Month Sales discount Sales discount Total Gifts and donations (Note 8) 60.230 792.300 not taken taken Sales 39.500 Apr-19 1,134,500 214,000 1,348,500 Distribution costs (Note 9) Impaired trade debts (Note 10) Vehicles maintenance (Note 11) Leasing cost (Note 12) ) 110.000 May-19 1,166,590 60,000 1,226,590 13.500 Jun-19 1,090,654 331,500 1,422,154 (2,403,790) Jul-19 1,076,500 445,500 1,522,000 _125,000) Interest cost (Note 13) ( Other income: Aug-19 1,076,200 55,300 1,131,500 Property income (Note 14) 35,000 Sep-19 1,110,100 0 1,110,100 Bank interest (Note 15) 8,500 Oct-19 990,400 195,000 1,185,400 Dividends (Note 16) 21,000 Nov-19 782,230 66,230 848.460 Page 3 of 12 Page 4 of 12 Dec-19 1,104,000 205,430 1,309,430 Oct-19 502,346 0 25,117 527,463 Jan-20 890,000 0 0 890,000 Nov-19 623,654 0 31,183 654,837 Feb-20 786,230 93,596 879,826 Dec-19 815,000 32,600 40,750 888,350 Mar-20 716,337 110,000 826,337 Jan-19 612,400 6,700 30,620 649,720 Total 11,923,741 1,776,556 13,700,297 Feb-19 590,000 14,320 29,500 633,820 712,880 0 35,644 748,524 Sales revenues amount given in the statement of profit or loss is the net of discounts and has been computed as follows: Mar-19 Total 10,008,200 126,520 500,000 10,634,720 f Gross Sales revenues 550,000 Less: sales discount (1,776,556 x 0.03) Sales revenues, net , 13,700,297 (53,297) 13,647,000 Inventories April 1, 2019 Add: Cost of goods purchased Purchases 10,634,720 Purchase discount (126,520 x 2%) (2.530) 10,632,190 Ending inventories March 31, 2020 (967,470) Note#3. Cost of goods sold Costs of goods sold includes payments to suppliers and other costs directly associated with procuring inventories. Hi Spirit Limited purchases goods on credit of 60 days and is offered a discount of 2% for payments made within 30 days. . All purchases and costs of acquiring goods are standard rated. Cost of goods sold 10,214,720 Note#4. Rent expenses Quarter Purchases Total Rent was paid in respect of two stores rented for the business purposes. The rent amount reported in the statement of profit or loss relates to the year ended 31 March 2020. . Purchases (discount not availed) Cost of acquiring inventories (discount availed) Apr-19 910,300 30,500 45,515 986,315 Note#5. Repairs and renewals Repairs and renewals include: May-19 801,900 0 40,095 841,995 32,210 Jun-19 1,205,400 12,000 60,270 1,277,670 21,300 Jul-19 1,700,200 8,800 84,600 1,793,600 Construction of new block for the staff in the main office Repainting of the company owned stores Repainting of the rented stores (amount was deducted from the rent payable to the landlord as per arrangement with the landlord, amount of rent exp. reported is the net of this deduction, See note# 4) Aug-19 784,000 21,600 39,200 844,800 Sep-19 750,120 0 37,506 787,62 8.100 Page 5 of 12 Page 6 of 12 Annual heating maintenance charges for the company owned premises 7.000 68,610 Note#6. General and administartive expenses 790,000 General and administartive expenses include: Employee salaries and compenstaion Employer's national insurance contributions Other general and administrative all allowable) 14,000 96.000 Note#8. Gifts and donations Qualifing charitable donations 11,080 Political donations 5,000 Donation to Rahim Welfare, a local approved charity (Hi Spirit Limited received free advertisement in the charity's magazine) 12,000 Gifts to the customers (100 diaries bearing company name costing 60 per dones) 6,000 Gifts to customers (wall clocks bearing company names and costing 20 per donee) 5,350 Food vouchers gifted to loyal customers 2.000 Staff party, cost 150 per person 12,450 Gifts to high performing employees 6,350 60,230 900,000 Note#7. Fees, fines and charges Accounting and audit fees 9,500 Fee paid for debt collection 5,000 6.200 7,400 5,600 Note#9. Distribution costs # Distribution costs include: 3,000 2,500 475,000 Legal fee in connection with the trade financing (Note 13) Legal fee in connection with the issue of new shares Legal fee in connection with acquiring and registering new vans Fee paid for professional counselling of terminated staff Fee paid for employees training and professional development Legal fees in connection with renewing a 25-year lease Legal fees in connection with a new 50-year lease HMRC penalties on late payments and filing Legal fee in connection with a fine on noncompliance of COVID-19 Restrictions Advertising and promotions Entertaining UK customers 3,100 4,300 5,550 Other distribution costs (all allowable) 313,000 4,300 792,300 2.500 54,650 Note#10. Impaired trade debts By 31 March 2020, Hi Spirit Limited has written off impairment losses in respect of following two invoices: 1. Invoice originally due on 9 January 2020, issued to New Royal Troupe for 31,000 2. Invoice originally due on 10 August 2019, issued to Channel Entertainment Company for 8,500 Page 7 of 12 Page 8 of 12 HIGHER COLLEGES OF TECHNOLOGY Note#17. Loan interest HIGHER COLLEGES OF TECHNOLOGY Note#11. Vehicle Maintenance Hi Spirit Limited owns and maintains vehicles for transporartion of goods from premises of manufacturer to the stores and stores to clients if needed. Vehicle manintennace include fuel cost and other costs of maintaining company's vans. Loan stocks are held for investment purposes. The amount of loan interest reported in the statement of profit or loss is the amount accrued on 31 March 2020 and related to the period ending on 31 March 2020 Note#12. Leasing cost The leasing cost of 13,500 was paid in respect of two motor cars under the use of company employees for business purposes: 1. Car which has CO2 emissions of 100 grams per kilometer, lease cost 7,500 2. Car which has CO2 emissions of 120 grams per kilometer, lease cost 6,000 Note#18. Plant and machinery The tax written down value of Hi Spirit Limited's main pool assets on 1 April 2019 was 1,350,000. Following main pool items were purchased and disposed during the year to 31 March 2020: 15 July 2019 Purchased a van 75.000 9 Sept 2019 Purchased motor car CO2 emissions 100g/km 12,500 5 Dec 2019 Sold a repairing equipment (original cost 9,000) (10,000) 20 Feb 2020 Sold a van (original cost 31,800) _{24,000) All transactions of sales and purchases given in this note are subject to standard rate of VAT. Note#13. Interest cost The interest cost is in respect of the company's 4% loan stock. The loan stock was used to finance the company's trade activities. The interest amount given in the statement of profit and loss has been paid and is the amount relevant to the accounting period ended 31 March 2020. Note#14. Income from property Note#19. Company's VAT periods end on 30 June, 30 September, 31 December and 31 March every year. For the purpose of computing VAT liability, monthly data of taxable expenses and supplies included in the statement of profit or loss is as follows. Hi Spirit Limited let out office space surplus to its requirements on 1 April 2019 to an unconnected firm. The tenant paid the rent in 4 equal payments between 1 April 2019 and 31 March 2020. The amount of rental income reported in the statement of profit or loss is the taxable rental income in this regard. Quarter Standard rated Total zero rated expenses & supplies expenses & supplies Note#15. Bank interest Apr-19 150,540 12,300 162,840 The bank interest relates to the year ended 31 March 2020. The bank deposits are held for non- trading purposes. May-19 110,430 15,900 126,330 Jun-19 145,000 7,230 152,230 Note#16. Dividends Jul-19 119,000 6,000 125,000 Dividends of 21,000 were received from another UK resident company. Aug-19 144,210 4,902 149,112 Page 9 of 12 Page 10 of 12 HIGHER COLLEGES OF TECHNOLOGY HIGHER COLLEGES OF TECHNOLOGY Required: Sep-19 91,432 0 91,432 a. Oct-19 89,600 6,543 96,143 Nov-19 64,300 13,000 77,300 Dec-19 105,340 2,500 107,840 Assess tax adusted trading profits using the information given in statement of profit or loss and notes for Hi Spirit Limited Ltd for the year ended 31 March 2020. Start with the profit before taxation of 1,076,290 and list all of the items in the statement of profit and loss and in notes indicating by the use of a zero (0) any items that do not require adjustment. Assume that the company claims maximum available capital allowances. . (11.5 marks) b. Jan-19 82.876 7,456 90.332 Feb-19 86,000 3,240 89,240 104,080 Mar-19 95,980 8.100 Total 1,284,708 87,171 1,371,879 Assess taxable total profits for the period ended 31 March 2020. (1 marks) c. Assess Hi Spirit Limited's corporation tax liability for the period ended 31 March 2020. . (0.5 marks) d. Assess Hi Spirit Limited's VAT liability for the quarters ended on 30 June 2019, 20 September 2019, 31 December 2019 and 31 March 2020. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible. (11 marks) e By when and how, should Hi Spirit Ltd file the corporate tax return and pay the tax payable for the period ended 31 March 2020 to avoid penalties and interests? Until when the accounting records relevant to the tax year 2019/20 must be kept by Hi Spirit Ltd? Explain in detail with reference to the tax rules and HMRC's directives. . (1 mark) Page 11 of 12 Page 12 of 12 Loan interest (Note 17) 8.300 72.800 Profit before taxation 1,076,290 Hi Spirit Limited is a UK resident company. The company trades in a wide range of musical instruments and all goods are taxable unless stated otherwise. Hi Spirit Limited buys instruments from a local manufacturer for sale in England & Wales. Hi Spirit Limited does not export their products overseas. Hi Spirit Limited prepares its accounts to 31 March each year. The detailed statement of profit or loss for the year ended 31 March 2020 is given below: Notes: Note#1. High Spirit Limited Hi Spirit Limited distributes musical instruments through 8 stores located across the England and Wales, of those 6 stores are owned by the company and remaining 2 are rented premises. 6 . Company has recruited 83 employees for purchase, and sales of its products including those in f 13,647,000 Sales revenues, net (Note 2) Cost of goods sold (Note 3) Gross profit _(10.214.720) 3,432,280 Operating expenses: Rent expenses (Note 4) its main office for administration. Note#2. Sales revenues, net Monthly sales for the year ending on 31 March 2020 are given below. All sales are standard- rated. Most of the sales are on cash except those made to its customers in entertainment . industry. Credit sales offer 3% discount for a prompt payment (made within 15 days of the issuance of the invoices). Sales figures in below given table are before any prompt payment discount 115.000 68.610 Repairs and renewals (Note 5) General & administrative (Note 6) 900.000 250.000 Depreciation Fees, fines and charges (Note 7)_ 54,650 Month Sales discount Sales discount Total Gifts and donations (Note 8) 60.230 792.300 not taken taken Sales 39.500 Apr-19 1,134,500 214,000 1,348,500 Distribution costs (Note 9) Impaired trade debts (Note 10) Vehicles maintenance (Note 11) Leasing cost (Note 12) ) 110.000 May-19 1,166,590 60,000 1,226,590 13.500 Jun-19 1,090,654 331,500 1,422,154 (2,403,790) Jul-19 1,076,500 445,500 1,522,000 _125,000) Interest cost (Note 13) ( Other income: Aug-19 1,076,200 55,300 1,131,500 Property income (Note 14) 35,000 Sep-19 1,110,100 0 1,110,100 Bank interest (Note 15) 8,500 Oct-19 990,400 195,000 1,185,400 Dividends (Note 16) 21,000 Nov-19 782,230 66,230 848.460 Page 3 of 12 Page 4 of 12 Dec-19 1,104,000 205,430 1,309,430 Oct-19 502,346 0 25,117 527,463 Jan-20 890,000 0 0 890,000 Nov-19 623,654 0 31,183 654,837 Feb-20 786,230 93,596 879,826 Dec-19 815,000 32,600 40,750 888,350 Mar-20 716,337 110,000 826,337 Jan-19 612,400 6,700 30,620 649,720 Total 11,923,741 1,776,556 13,700,297 Feb-19 590,000 14,320 29,500 633,820 712,880 0 35,644 748,524 Sales revenues amount given in the statement of profit or loss is the net of discounts and has been computed as follows: Mar-19 Total 10,008,200 126,520 500,000 10,634,720 f Gross Sales revenues 550,000 Less: sales discount (1,776,556 x 0.03) Sales revenues, net , 13,700,297 (53,297) 13,647,000 Inventories April 1, 2019 Add: Cost of goods purchased Purchases 10,634,720 Purchase discount (126,520 x 2%) (2.530) 10,632,190 Ending inventories March 31, 2020 (967,470) Note#3. Cost of goods sold Costs of goods sold includes payments to suppliers and other costs directly associated with procuring inventories. Hi Spirit Limited purchases goods on credit of 60 days and is offered a discount of 2% for payments made within 30 days. . All purchases and costs of acquiring goods are standard rated. Cost of goods sold 10,214,720 Note#4. Rent expenses Quarter Purchases Total Rent was paid in respect of two stores rented for the business purposes. The rent amount reported in the statement of profit or loss relates to the year ended 31 March 2020. . Purchases (discount not availed) Cost of acquiring inventories (discount availed) Apr-19 910,300 30,500 45,515 986,315 Note#5. Repairs and renewals Repairs and renewals include: May-19 801,900 0 40,095 841,995 32,210 Jun-19 1,205,400 12,000 60,270 1,277,670 21,300 Jul-19 1,700,200 8,800 84,600 1,793,600 Construction of new block for the staff in the main office Repainting of the company owned stores Repainting of the rented stores (amount was deducted from the rent payable to the landlord as per arrangement with the landlord, amount of rent exp. reported is the net of this deduction, See note# 4) Aug-19 784,000 21,600 39,200 844,800 Sep-19 750,120 0 37,506 787,62 8.100 Page 5 of 12 Page 6 of 12 Annual heating maintenance charges for the company owned premises 7.000 68,610 Note#6. General and administartive expenses 790,000 General and administartive expenses include: Employee salaries and compenstaion Employer's national insurance contributions Other general and administrative all allowable) 14,000 96.000 Note#8. Gifts and donations Qualifing charitable donations 11,080 Political donations 5,000 Donation to Rahim Welfare, a local approved charity (Hi Spirit Limited received free advertisement in the charity's magazine) 12,000 Gifts to the customers (100 diaries bearing company name costing 60 per dones) 6,000 Gifts to customers (wall clocks bearing company names and costing 20 per donee) 5,350 Food vouchers gifted to loyal customers 2.000 Staff party, cost 150 per person 12,450 Gifts to high performing employees 6,350 60,230 900,000 Note#7. Fees, fines and charges Accounting and audit fees 9,500 Fee paid for debt collection 5,000 6.200 7,400 5,600 Note#9. Distribution costs # Distribution costs include: 3,000 2,500 475,000 Legal fee in connection with the trade financing (Note 13) Legal fee in connection with the issue of new shares Legal fee in connection with acquiring and registering new vans Fee paid for professional counselling of terminated staff Fee paid for employees training and professional development Legal fees in connection with renewing a 25-year lease Legal fees in connection with a new 50-year lease HMRC penalties on late payments and filing Legal fee in connection with a fine on noncompliance of COVID-19 Restrictions Advertising and promotions Entertaining UK customers 3,100 4,300 5,550 Other distribution costs (all allowable) 313,000 4,300 792,300 2.500 54,650 Note#10. Impaired trade debts By 31 March 2020, Hi Spirit Limited has written off impairment losses in respect of following two invoices: 1. Invoice originally due on 9 January 2020, issued to New Royal Troupe for 31,000 2. Invoice originally due on 10 August 2019, issued to Channel Entertainment Company for 8,500 Page 7 of 12 Page 8 of 12 HIGHER COLLEGES OF TECHNOLOGY Note#17. Loan interest HIGHER COLLEGES OF TECHNOLOGY Note#11. Vehicle Maintenance Hi Spirit Limited owns and maintains vehicles for transporartion of goods from premises of manufacturer to the stores and stores to clients if needed. Vehicle manintennace include fuel cost and other costs of maintaining company's vans. Loan stocks are held for investment purposes. The amount of loan interest reported in the statement of profit or loss is the amount accrued on 31 March 2020 and related to the period ending on 31 March 2020 Note#12. Leasing cost The leasing cost of 13,500 was paid in respect of two motor cars under the use of company employees for business purposes: 1. Car which has CO2 emissions of 100 grams per kilometer, lease cost 7,500 2. Car which has CO2 emissions of 120 grams per kilometer, lease cost 6,000 Note#18. Plant and machinery The tax written down value of Hi Spirit Limited's main pool assets on 1 April 2019 was 1,350,000. Following main pool items were purchased and disposed during the year to 31 March 2020: 15 July 2019 Purchased a van 75.000 9 Sept 2019 Purchased motor car CO2 emissions 100g/km 12,500 5 Dec 2019 Sold a repairing equipment (original cost 9,000) (10,000) 20 Feb 2020 Sold a van (original cost 31,800) _{24,000) All transactions of sales and purchases given in this note are subject to standard rate of VAT. Note#13. Interest cost The interest cost is in respect of the company's 4% loan stock. The loan stock was used to finance the company's trade activities. The interest amount given in the statement of profit and loss has been paid and is the amount relevant to the accounting period ended 31 March 2020. Note#14. Income from property Note#19. Company's VAT periods end on 30 June, 30 September, 31 December and 31 March every year. For the purpose of computing VAT liability, monthly data of taxable expenses and supplies included in the statement of profit or loss is as follows. Hi Spirit Limited let out office space surplus to its requirements on 1 April 2019 to an unconnected firm. The tenant paid the rent in 4 equal payments between 1 April 2019 and 31 March 2020. The amount of rental income reported in the statement of profit or loss is the taxable rental income in this regard. Quarter Standard rated Total zero rated expenses & supplies expenses & supplies Note#15. Bank interest Apr-19 150,540 12,300 162,840 The bank interest relates to the year ended 31 March 2020. The bank deposits are held for non- trading purposes. May-19 110,430 15,900 126,330 Jun-19 145,000 7,230 152,230 Note#16. Dividends Jul-19 119,000 6,000 125,000 Dividends of 21,000 were received from another UK resident company. Aug-19 144,210 4,902 149,112 Page 9 of 12 Page 10 of 12 HIGHER COLLEGES OF TECHNOLOGY HIGHER COLLEGES OF TECHNOLOGY Required: Sep-19 91,432 0 91,432 a. Oct-19 89,600 6,543 96,143 Nov-19 64,300 13,000 77,300 Dec-19 105,340 2,500 107,840 Assess tax adusted trading profits using the information given in statement of profit or loss and notes for Hi Spirit Limited Ltd for the year ended 31 March 2020. Start with the profit before taxation of 1,076,290 and list all of the items in the statement of profit and loss and in notes indicating by the use of a zero (0) any items that do not require adjustment. Assume that the company claims maximum available capital allowances. . (11.5 marks) b. Jan-19 82.876 7,456 90.332 Feb-19 86,000 3,240 89,240 104,080 Mar-19 95,980 8.100 Total 1,284,708 87,171 1,371,879 Assess taxable total profits for the period ended 31 March 2020. (1 marks) c. Assess Hi Spirit Limited's corporation tax liability for the period ended 31 March 2020. . (0.5 marks) d. Assess Hi Spirit Limited's VAT liability for the quarters ended on 30 June 2019, 20 September 2019, 31 December 2019 and 31 March 2020. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible. (11 marks) e By when and how, should Hi Spirit Ltd file the corporate tax return and pay the tax payable for the period ended 31 March 2020 to avoid penalties and interests? Until when the accounting records relevant to the tax year 2019/20 must be kept by Hi Spirit Ltd? Explain in detail with reference to the tax rules and HMRC's directives. . (1 mark) Page 11 of 12 Page 12 of 12