OCD040 UNIVERSITY OF BOLTON RAK ACADEMIC CENTRE ACCOUNTANCY SEMESTER ONE EXAMINATIONS 2017/18 PERSONAL AND BUSINESS TAXATION MODULE NO: ACC5003 Date: Thursday 18 th January 2018 Time: 1:00pm 4:00pm INSTRUCTIONS TO CANDIDATES: There are FIVE questions in this examination Section A - Answer ALL THREE questions Section B Answer ONE question This is a closed book examination. You must hand in this exam paper with your answer booklet.
Page 2 of 8 Section A answer ALL questions in this section Question 1 Gregory was appointed sales director of Richer Foods Ltd on 1 July, 2017. His employment package was as follows: 1. Annual salary of 30,000 payable in equal instalments in arrears on the last day of each month. 2. A commission related to sales and payable annually shortly after the company s year-end, 31 March. The commission to 31 March 2018, 2,700, was paid on 30 April 2018. 3. Company car, a diesel 1900cc. The car was first registered on 1 August 2012 has an emission level of 217g/km of carbon dioxide and had a list price of 30,000 when new. All running expenses, including private fuel, were to be paid for by the company but Gregory was to pay the company 50 per month for private use of the car and 20 per month for private fuel, whatever the amount used. His total mileage from appointment to 5 April 2018 was 16,000, of which 1,000 were private. These mileage figures were evenly spread over the period. The fuel consumption of the car averaged 5 miles per litre of fuel. Fuel cost an average 115 pence per litre. 4. A clothing allowance of 600 per annum payable monthly on the first day of each month.. 5. Gregory received net interest from his bank of 2,000 and dividends from UK companies in which he held investments amounting to 13,500. a) Show the amounts assessable as employment income on Gregory for the tax year 2017/18. b) Compute the amount of income tax payable by Gregory for the 2017/18 tax year. c) Provide explanations for the treatment of the items 1-5 above whilst preparing the tax computation for Gregory. (Total 25 marks)
Page 3 of 8 Question 2 Bender Ltd is a UK resident company in the metal fabrication sector. The company summarised income statement is below for the year ended 31 March 2018. Notes Gross profit 876,500 Depreciation (85,660) Amortisation of leasehold property 1 (6,000) Gifts and donations 2 (2,700) Professional fees 3 (18,800) Other expenses 4 (230,240) Bank interest 5 12,400 Dividends 6 54,000 Gain on disposal of non-current assets 80,700 Interest payable 7 (60,800) Profit before taxation 619,400 Notes: 1) Leasehold property: On 1 April 2017 Bender Ltd acquired a leasehold office building, paying a premium of 60,000 for the grant of a new 10-year lease. The office was used by the business for the whole financial year. 2) Gifts and donations included gifts to customers of pens with the company name at a cost of 60 each totalling 1,200. These customers also received food hampers at a cost of 25 each totalling 1,100. A Donation of 400 to a local charity whereby the company received free advertising in the charity magazine. 3) Professional fees include 3,600 in connection with the renewal of the lease of the company warehouse and 15,200 of legal fees for the issue of the debentures (see note 7). 4) Other expenses include 1,300 for entertaining suppliers and 900 for entertaining the employees of Bender Ltd. 5) Bank interest was received on 31 March 2018. The bank deposits were held for non-trading purposes. 6) Dividends received: during the year ended 31 March 2018 Bender Ltd received 54,000 from its investments in UK un-connected companies. 7) Interest payable: this is in respect of the companies 5% debentures that were issued on 1 April 2013. Interest of 30,400 was paid on 30 September 2017 and again on 31 March 2018.
Page 4 of 8 Question 2 continues over the page. Question 2 continued 8) The tax written down values on 1 April 2017 for plant and machinery were as follows: Main pool 16,800 Special rate pool 18,400 The following transactions took place during the financial year ended 31 March 2018: 21 May 2017 Purchased equipment 12,972 16 July 2017 Purchased car (1) 9,800 13 August 2017 Purchased car (2) 16,200 8 October 2017 Purchased lorry 17,200 9 March 2018 Sold equipment (3,300) Car (1) was purchased on 16 July 2017 for 9,800 and has a CO2 rating of 155g/km. Car (2) purchased on 13 August 2017 for 16,200 was a low emissions car with CO2 emissions less than 90g/km. The equipment sold on 9 March 2018 for 3,300 was originally purchased in 2008 for 8,900. Calculate Bender Ltd s corporation tax payable for the year ended 31 March 2018. (Total 25 Marks)
Page 5 of 8 Question 3 Albert Duff has invested his lottery winnings in four properties which he lets out. The following information relates to the 2017/18 tax year. Property A: This is a freehold semi-detached house in Manchester which Albert lets out unfurnished. The property was let for the whole of 2017/18 at a monthly rental of 575 which is payable in advance. During this tax year Albert paid council tax amounting to 1,200 and buildings insurance of 340 in respect of this property. He claims the wear and tear allowance for this property and made no capital purchases for the property. Property B: This is a freehold detached house in Bolton and it is also let out unfurnished. The property was purchased on 6 March 2017 and was empty until 30 June 2017. It was then let from 1 July 2017 to 31 January 2018 at a monthly rental of 710 payable in advance. On 31 January 2018 the tenant left owing 3 months rent and Albert was not able to recover this, the property was not let until 6 April 2018. During the 2017/18 tax year Albert paid 290 on insurance for this property as well as 670 for advertising. Albert had financed the purchase of this property with a loan on which he paid interest of 500 during the year. Property C: Albert owns an office block that he lets out unfurnished; he pays annual rent of 6,800 for this property and did not pay a premium when he acquired it. On 6 April 2017 the property was let to a sub-tenant with Albert receiving a premium of 15,000 for the grant of a 5 year lease. He also received the annual rent of 4,600 which was payable in advance, Albert paid property insurance on this office block for the year of 360. Property D: During the 2017/18 tax year Albert rented out a furnished room in his main residence. During the year he received rent of 5,040 and incurred allowable expenditure of 1,140 in respect of the room. Calculate Albert s property business profits in respect of the three properties and the furnished room for the 2017/18 tax year. (Total 25 marks)
Page 6 of 8 End of section A Section B - Answer ONE question only from this section Question 4 a) Alicia Smythe is considering setting up her own business. Advise her of the difference between allowable and disallowable expenditure and (with examples) how they affect her tax liability calculation. (12 marks) b) She has also asked for your advice about capital allowances and why they need to be calculated when her accountants have already talked about depreciation. Distinguish between capital allowances and depreciation and explain how the Annual Investment Allowance will help to encourage investment for small businesses. (13 marks) Total 25 Marks
Page 7 of 8 Question 5 Part A Graham Dauber started his business on 1 July 2012 selling martial arts equipment to Karate schools in the north west of England. He selected 31 December as his yearend date to which the financial statements are prepared. During 2017 he won the lottery and decided to retire to Mallorca and as a result ceased trading on 30 September 2017. His results are as follows: Profits ( ) 6 months to 31 December 2012 16,800 12 months ended December 2013 18,400 12 months ended December 2014 21,000 12 months ended December 2015 15,000 12 months ended December 2016 12,800 9 months to September 2017 11,600 Compute Graham s trading income for each tax year and show that the total of his income is equal to the total adjusted profits listed above (ensure your answer clearly states any overlap profits and eligible reliefs). (13 Marks) Part B Graham s wife (Pamela Dauber) is considering giving up her job as a secretary at a large Law firm to start her own business. She has a passion for making decorative flowers from silk and she has been told that there is a huge market for her products. However, her sister has told her that she needs to ensure that she understands the Badges of Trade in relation to her new business for tax purposes. Write a letter (in your role as her accountant) that explains what the badges of trade are, and how these relate to her proposed new business. (12 marks) Total 25 Marks
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