Question
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:
- Calculate Spotless Homes Ltds tax adjusted trading income for the period ended 31 October 2019, before capital allowances.
(7 marks)
- Calculate Spotless Homes Ltds capital allowances.
(13 marks)
- 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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