Question 1

Spotless Homes Ltd is a manufacturer of cleaning products. Spotless Homes Ltds summarised statement of profit or loss for the 16 month period ended 31 October 2019 is as follows:

Gross profit			1,082,020
Operating expenses
	Depreciation	100,820
	Repairs and renewals (Note 1)	22,800
	Professional fees (Note 2)	19,900
	Wages and salaries (Note 3)	256,000
	Motor expenses (Note 4)	76,910
	Other expenses (Note 5)	224,000
			(700,430)
Operating profit			381,590
Income from investments
	Bank interest (Note 7)		64,525
	Dividends (Note 8)		12,500
Net profit from sale of assets (Note 6)			5,674
Finance costs (Note 9)			(21,643)
Profit before taxation			442,646

Notes:

1) Repairs and renewals

Includes 20,800 relating to the construction of an extension to the companys current main premises.

2) Professional fees

Professional fees are as follows:

Accounting and audit fee	2,400
Legal fees in connection with a legal dispute regarding a cleaning product patent owned by Spotless Homes Ltd	7,800
Corporate membership of a cleaning product society	3,000
Legal fees in connection with an appeal against business rates charged in 2018.	6,700
	19,900

3) Wages and salaries Includes 100,000 of bonuses.

4) Motor expenses

Includes 19,200 in relation to the running costs of the Finance Directors car which is used for private journeys 35% of the time.

5) Other expenses

Includes 105,000 to entertain international clients. Also includes 86,915 in relation to general bad debt provisions. The remaining expenses are all fully allowable.

6) Profit on disposal of assets

The net profit on disposal of assets relates to the disposal of Spotless Homes Ltd office building on 26 July 2019 for 850,000 incurring legal fees of 20,726. The company had acquired this newly-constructed office building in October 2013 for 821,600.

7) Bank interest received

Bank interest was received on 31 December 2018. The bank interest accrues evenly throughout the year and deposits are held for non-trading purposes.

8) Dividends received During the year Spotless Homes Ltd received dividends from Hinchliffe Ltd, an unconnected UK company, and the cash amount received is included in the statement of profit or loss.

9) Finance costs

Spotless Homes Ltd issued a loan note on 1 July 2018, and this was used for trading purposes. Interest of 16,243 was paid on 30 June 2019, and 5,400 was accrued as at 31 October 2019.

10) Plant and machinery On 1 July 2018 the tax written down values were as follows:

General pool	16,700
Finance Directors car (CO2 emissions 164g/km)	16,400

The following transactions took place during the period ended 31 October 2019:

		Cost/(Proceeds)
12 July 2018	Purchased equipment	61,400
8 September 2018	Sold the Finance Directors car (Original Cost 26,800)	(16,750)
8 October 2018	Purchased motor car (CO2 emissions 162g/km)	31,600
19 January 2019	Purchased machine	213,800
8 March 2019	Sold equipment (Original Cost 7,000)	(7,600)
10 October 2019	Installed a second-hand elevator system in their head office	360,000

YOU ARE REQUIRED TO:

1. Calculate Spotless Homes Ltds tax adjusted trading income for the period ended 31 October 2019, before capital allowances.

(7 marks)

2. Calculate Spotless Homes Ltds capital allowances.

(13 marks)

3. Calculate the total taxable profit and tax liability arising with respect to the periods ended 31 October 2019, stating the due date where relevant.

(10 marks)

TOTAL 30 MARKS

Assume the following Retail Price Indices (RPIs):

October 2013	251.9
December 2017	278.1