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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

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)

  1. Calculate Spotless Homes Ltds capital allowances.

(13 marks)

  1. 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

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