Question 1 (compulsory)

TONY NOTE

Tony Note is self-employed running a music shop. His statement of profit or loss for the year ended 5 April 2020 is as follows:

Gross profit 347,830

Expenses:

Depreciation 2,640

Motor expenses (Note 1) 9,800

Professional fees (Note 2) 4,680

Repairs and renewals (Note 3) 670

Travelling and entertaining (Note 4) 4,630

Wages and salaries (Note 5) 77,200

Other expenses (Note 6) 78,780

(178,400)

Net profit 169,430

Note 1 Motor expenses

During the year ended 5 April 2020 Tony drove a total of 20,000 miles, of which 2,500 were driven when he went on holiday to Europe. The balance of the mileage is 20% for private journeys and 80% for business journeys.

Note 2 Professional fees

The figure for professional fees consists of 1,460 for accountancy, 620 for personal financial planning advice and 2,600 for fees in connection with an unsuccessful application for planning permission to enlarge Tonys freehold music shop.

Note 3 Repairs and renewals

The figure for repairs and renewals consists of 270 for a replacement hard drive for the shops computer, and 400 for a new printer for this computer.

Note 4 Travelling and entertaining

The figure for travelling and entertaining consists of 4,150 for Tonys business travelling expenses and 480 for entertaining suppliers.

Note 5 Wages and salaries

The figure for wages and salaries includes a salary of 16,000 paid to Tonys wife. She works in the music shop as a sales assistant. The other sales assistants doing the same job are paid a salary of 12,000 p.a.

Note 6 Other expenses

The figure for other expenses includes 75 in respect of a wedding present to an employee, 770 for Tonys health club subscription and 180 for a trade subscription to the Guild of Musical Instrument Retailers.Note 7 Private telephone

Tony uses his private telephone to make business telephone calls. The total cost of the private telephone for the year ended 5 April 2020 was 680, and 25% of this related to business telephone calls. The cost of the private telephone is not included in the statement of profit or loss expenses of 178,400.

Note 8 Goods for own use

During the year ended 5 April 2020 Tony took goods out of the music shop for his personal use without paying for them, and no entry has been made in the accounts to record this. The goods cost 600, and had a selling price of 950.

Note 9 Plant and machinery

The tax written down values for capital allowances purposes at 6 April 2019 were:

Main pool 7,400

Car with private use (CO2 emissions 106g/km) 16,200

The car was used by Tony. It was sold during the year for 11,000. A new car, also used by Tony was bought for 25,000. It has CO2 emissions of 159g/km.

Required:

Calculate Tonys tax adjusted trading profit for the year ended 5 April 2020.

Your computation should commence with the net profit figure of 169,430 and should list all the items referred to in Notes (1) to (8), indicating by the use of zero (0) any items that do not require adjustment. (25 marks)