QUESTION 5 Mary is a tax registered as a Sole Trader who owns a very busy hairdressing salon in Dublin. Her Statement of Profit and Loss for the year ended 2020 is as follows: Notes 150,000 Trade income Rental Income Dividends received Interest income from bank deposit account 12,500 7,500 6,300 26,300 Total Income 176,300 1 2 Less Expenses: Employee costs Legal and professional costs Depreciation Interest and charges Bad debts Maintenance Administration costs Premises costs Motor expenses Travel and subsistence Advertising and promotional costs Insurance 3 4 5 69,000 5,525 325 11,500 10,000 3,500 4,380 24,500 4,100 7,500 2.050 3,250 7 8 9 10 11 145,630 30,670 Net Profit Notes: (1) Employee costs Mary's drawings Mary's personal pension Employee wages including PAYE/PRSI Christmas Party Employee uniforms 40,000 1,500 22,500 3.750 1,250 69,000 6 Included in employee wages is 2,500 that Mary paid a cleaner, who cleans Mary's house. There were two customers who attended the Xmas party at a cost of 150 each. Page 7 of 10 (3) Interest and charges 3.250 Interest on business overdraft Business bank overdraft facility fees and bank charges Interest charged by suppliers for late payment Mortgage interest on home loan Car leasing charge 500 250 3.750 3.750 11,500 Mary leases a car with a lease price of 40,000 that is within category D. (4) Bad debts Bad debts written off General provision for bad debts Specific provision for bad debts 6,400 2,300 1.300 10.000 (5) Maintenance 350 2,550 Plumbing expenses Purchase of Sun Bed Repairs to sun bed Servicing of hair dryers 450 150 3,500 Plumbing expenses relate to the servicing of sinks in both the hairdressing salon and Mary's home. Approximately 10% relate to Mary's house The sun bed is a method of obtaining a sun tan. Although expensive, this has proved very popular with customers. Page 8 of 10 (6) Administration costs Telephone landline calls Mobile calls - Mary Raffle prize to local school of a a hair treatment Donation to charity Magazines 3,000 880 150 200 150 4,380 15% of Mary's mobile calls are personal. Half of the magazine cost related to a DIY magazine for Mary's husband. 8 (8) Motor expenses Mary's car expenses Employee car expenses Speeding fines Clamping fees = 2,500 950 200 450 4,100 The employee's car relates to total kilometres travelled in 2020 of 10,000 of which 2,000 were for private use. Mary's expenses have already been adjusted and relate 100 % to business use. (9) Travel and subsistence Of the travel and subsistence costs, 75% relates to a trip Mary took to New York to celebrate her 40th birthday party. (10) Advertising and promotional costs Advertising for Mary's husband's business Business cards Cost of a stand at a wedding trade fair 750 100 1.200 2,050 (11) Insurance Page 9 of 10 Premises Insurance Public liability Insurance 1.500 1.750 3,250 REQUIREMENT: (a) Compute Mary's Schedule D, Case I tax adjusted profits for the year ended 31st December 2020. (10 marks) (b) Taking into account, the pension Investment made by Mary, advise Mary as to what her taxable income for Income tax purposes is and her taxable income for USC/PRSI purposes. Note: you are NOT required to calculate the tax. (10 marks) (c) Advise and critically evaluate, whilst specifically referring to the teething problems of the TWSS when it was first introduced by the Irish government. (5 marks) Total (25 marks) QUESTION 5 Mary is a tax registered as a Sole Trader who owns a very busy hairdressing salon in Dublin. Her Statement of Profit and Loss for the year ended 2020 is as follows: Notes 150,000 Trade income Rental Income Dividends received Interest income from bank deposit account 12,500 7,500 6,300 26,300 Total Income 176,300 1 2 Less Expenses: Employee costs Legal and professional costs Depreciation Interest and charges Bad debts Maintenance Administration costs Premises costs Motor expenses Travel and subsistence Advertising and promotional costs Insurance 3 4 5 69,000 5,525 325 11,500 10,000 3,500 4,380 24,500 4,100 7,500 2.050 3,250 7 8 9 10 11 145,630 30,670 Net Profit Notes: (1) Employee costs Mary's drawings Mary's personal pension Employee wages including PAYE/PRSI Christmas Party Employee uniforms 40,000 1,500 22,500 3.750 1,250 69,000 6 Included in employee wages is 2,500 that Mary paid a cleaner, who cleans Mary's house. There were two customers who attended the Xmas party at a cost of 150 each. Page 7 of 10 (3) Interest and charges 3.250 Interest on business overdraft Business bank overdraft facility fees and bank charges Interest charged by suppliers for late payment Mortgage interest on home loan Car leasing charge 500 250 3.750 3.750 11,500 Mary leases a car with a lease price of 40,000 that is within category D. (4) Bad debts Bad debts written off General provision for bad debts Specific provision for bad debts 6,400 2,300 1.300 10.000 (5) Maintenance 350 2,550 Plumbing expenses Purchase of Sun Bed Repairs to sun bed Servicing of hair dryers 450 150 3,500 Plumbing expenses relate to the servicing of sinks in both the hairdressing salon and Mary's home. Approximately 10% relate to Mary's house The sun bed is a method of obtaining a sun tan. Although expensive, this has proved very popular with customers. Page 8 of 10 (6) Administration costs Telephone landline calls Mobile calls - Mary Raffle prize to local school of a a hair treatment Donation to charity Magazines 3,000 880 150 200 150 4,380 15% of Mary's mobile calls are personal. Half of the magazine cost related to a DIY magazine for Mary's husband. 8 (8) Motor expenses Mary's car expenses Employee car expenses Speeding fines Clamping fees = 2,500 950 200 450 4,100 The employee's car relates to total kilometres travelled in 2020 of 10,000 of which 2,000 were for private use. Mary's expenses have already been adjusted and relate 100 % to business use. (9) Travel and subsistence Of the travel and subsistence costs, 75% relates to a trip Mary took to New York to celebrate her 40th birthday party. (10) Advertising and promotional costs Advertising for Mary's husband's business Business cards Cost of a stand at a wedding trade fair 750 100 1.200 2,050 (11) Insurance Page 9 of 10 Premises Insurance Public liability Insurance 1.500 1.750 3,250 REQUIREMENT: (a) Compute Mary's Schedule D, Case I tax adjusted profits for the year ended 31st December 2020. (10 marks) (b) Taking into account, the pension Investment made by Mary, advise Mary as to what her taxable income for Income tax purposes is and her taxable income for USC/PRSI purposes. Note: you are NOT required to calculate the tax. (10 marks) (c) Advise and critically evaluate, whilst specifically referring to the teething problems of the TWSS when it was first introduced by the Irish government. (5 marks) Total (25 marks)