Salman is a trader who runs several market stalls in large towns. His accounts for the year ended 5th April 2020 show the following: Gross profit Expenses: Depreciation Transport costs Legal fees Professional expenses Other expenses Net profit 312,000 5,700 14,700 2,300 3,120 45,910 250,270 The accountant has pulled out the following details from the expenses analysis: 1. Transport costs includes 3,280 relating to Salmans personal car, 25% of his mileage has been agreed as relating to private usage. 2. Legal fees includes 350 spent on defending the business on a charge of negligence and 210 related to defending and paying Salmans parking penalties and 85 for paying his employees parking fines. The remaining legal fees were paid in respect of an ongoing divorce dispute with Salmans previous wife. 3. Professional expenses were in respect of accounting fees and 35 for Salmans annual dental check-up. 4. Other expenses contains: (a) 23,256 for the salary and employer costs for Salmans mother in law who works occasionally in the office (the usual cost for a similar employee would be 12,500). Page 4 of 8 This assessment is subject to the University Assessment Regulations for Candidates 2020/21 SECOND YEAR MAIN EXAMINATION BF2264MU BUSINESS TAXATION (b) 5,200 relating to money stolen by an ex-employee who is bankrupt. (c) 4,500 gifts to local charities that promote his services. (d) 3,000 political donation to the Labour Party. (e) 1,250 for telephone bills for Salmans high level mobile phone which is used 80% for business and 20% for non-business. (f) An increase of 2,600 in the general bad debt provision and the write off of 560 specific bad debts. (g) Loss of 250 on the sale of plant and equipment which was sold for 300. The accountant has also provided you with these tax details from last years file. Tax written down value of the Capital Allowances Main Pool at the start of the year was 34,000 and of Salmans Car Pool was 21,356. Salmans car is used 25% privately. Another car was purchased for 23,000 for employees to use in the business and it had an emissions figure of 55 g/km. Plant consisting of collapsible market stalls were purchased costing 750,000, this is not shown in the accounts. Required: (a) Calculate Salmans tax adjusted trading profit for the year ended 5 April 2020. (20 marks) Note: Your computation should start with the net profit of 250,270 and should list all the items referred to in Notes 1. to 4. , indicating with a zero (0) any items that do not require adjustment. (b) Write file notes ready to advise Salman on these points: (i) Salman is thinking of asking his mother to work in the firm as well, she would be treated as the other sales assistants on a daily rate of 70 gross. Advise Salman on the points he needs to consider when employing relatives in the firm from a tax point of view, referring to both his mother and his mother-in-law. (maximum 150 words) (ii) Salman is considering increasing depreciation rates on his assets to reduce his profits. Advise Salman on the tax and business effects of this. (max 150 words)