Business Question

Business Finance

Financial Accounting

the university of manchester

Question Description


I need help with my exam. my major is accounting and finance.

The exam is 2 sections

Section A: 5 short answer questions. Total 40 marks

Section B : 3 long questions. you can pick only two out of three long questions. 30 marks for each one. Total 60 marks. The three questions will probably be about sole trader. capital gains tax relief and cooperation tax.

you have 1 day to do the exam from 12 pm 20 January UK time to 12 pm 21 January. I need the exam ready 8 am 21 January. When the exam is given to me at 12 pm 20 January I will send the doc immediately.

I uploaded mock exams and past exams

The aim of the module is to introduce the students to system of business taxation within the UK. This module will deal with the direct taxation of business through corporation tax and income tax. Students will learn how to calculate the tax liability due to a business or an employed individual under UK legislation. The module will also consider the role of VAT and students will be able to calculate the liability due by a business for VAT and when a business needs to register and de register. Exiting a business and the subsequent Capital Gains Tax implications for entrepreneurs will also be studied. Students will learn to calculate a tax liability and also to explain the implications of actions to clients.

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MOCK EXAM BF2264 2020/21 FA2019 Section A – there will be 5 compulsory questions. They can be from ANY part of the syllabus. Worth 8 marks each i.e. 40% of the exam These questions are illustrative and similar in style to what you can expect to see. QUESTION 1 ABS Garages Ltd: Plant and machinery On 1 April 2019 the tax written down value of plant and machinery were as follows: Main pool £37,850 Special rate pool £44,700 The following transactions took place during the year: £ 10 May 2019 Purchased plant 5 January 2020 Purchased a delivery van 4 March 2020 Purchased long life machinery 13 March 2020 Sold some machinery (less than 180,300 16,900 870,000 26,500 purchase price) Note: the van is used 25% for personal use by the company mechanic. Required: Calculate the Capital Allowances due to ABS Garages Ltd for the Year Ended 31 March 2020 and explain how the treatment would change if this was a capital allowances working for a sole trader (8 marks) (60 words) QUESTION 2 Arthur operates an architectural firm, Star Buildings Ltd, since he purchased the entire shareholding for £123,000 in 2000. He has worked for the company since purchase. Arthur has decided to retire and on 27 May 2019. Arthur made a gift of his entire holding of Star Buildings Ltd shares to his daughter, Valerie, who also works for the company. The market value of the shares on that date was £275,000. Arthur and his daughter have elected to hold over the gain on this gift of a business asset. Neither Arthur nor Valerie had made any previous disposals chargeable to capital gains tax, and both are higher rate taxpayers. Required: Calculate the gains arising and capital gains tax liabilities for Arthur and Valerie on the gift of Star Buildings Ltd shares to Valerie during 2019/20 and state the base cost of the shares for Valerie in the future? Explain the implications of making a gift relief claim. (8 marks) (Words 120) QUESTION 3 Adam has bought and sold three cars this year. The first car he sold was his old Nissan Micra. The other two were cars he had bought from a car auction and realised, that with a little bit of work, he could make a profit on the sale of them. Required: Explain the “badges of trade” to Adam and why they are important when calculating the tax liability for an individual. (8 marks) (240 words) QUESTION 4 During the tax year 2019/20 Peter was made redundant. Peter was only employed until the 5 January 2020. His annual salary prior to being made redundant was £55,000. The company pays for health club membership for Peter and his family. This benefit is worth £600 per year. It actually costs the company £400 per year to provide as they receive a bulk buy discount. The company has always provided Peter with accommodation. It is not job related accommodation. This will also end on 5 January 2020. The accommodation cost £270,000 and has an annual value of £4,700. Furniture is also provided at a cost to the company of £11,000. None of the household running costs have been paid for by the company. A loan of £5,000 was made by Happy Occasions Ltd during the year to Peter. He paid it back before the end of his employment. Assume that the official rate of interest is 2.75% Required: What is Peter’s total employment income figure for 2019/20? (8 marks) QUESTION 5 Primrose’s business has an annual turnover of £450,000 (excluding VAT). All of its sales are standard rated. Primrose finds it difficult to recover some of her debts as many of the customers are slow at paying. She always makes purchases for cash. Required: What VAT schemes are available to Primrose? What conditions need to be met and which would you consider to be the most beneficial from the information given? (8 marks) (240 words) PART B This part of the exam will consist of 3 questions. Each question is worth 30 marks. You need to choose 2 OUT OF 3. So a total of 60 marks or 60% of the exam. The topics that will be covered in this section are  Sole trader calculation of profits  CGT for the individual exiting a business  Corporation Tax including losses This section of the exam should take you approximately 1 hour and 10 minutes so that is 35 minutes per question selected. QUESTION 1 SOLE TRADER Anastasia has been working as a plumber for many years. She has remained as a sole trader as she does not want the hassle of setting up a company and paying corporation tax. She provides you with the following information: £ Gross profit per the accounts: £ 173,000 Expenses: Depreciation 27,000 Son’s salary (note 1) 18,000 Legal fees (note 2) 6,500 Telephone (note 3) 400 Own salary (note 4) 20,000 Repairs and maintenance (note 5) 12,000 Administrative costs (note 6) 6,000 Sundry allowable expenses 4,000 (93,900) Net profit per the accounts: 79,100 Note 1- Her son is only going to do 2 hours a week for the business but Anastasia would like to pay him this amount because she believes it is tax efficient to do so and will mean he does not need to take out a loan to cover his University fees. Note 2 – Legal fees include: Chasing bad debts - £2,000 Purchase of a building - £4,000 Employee contracts - £500 Note 3 – This expense is partly business (45%) and partly for the personal use of her phone (55%). Note 4 – Throughout the year she had taken this much for her own salary. Note 5 – Repairs and Maintenance includes: Renewal of double glazing in the offices - £6,000 Painting the reception - £3,000 New desks for reception - £3,000 Note 6 – Administrative costs Gifts to local businesses of bottles of wine for Christmas - £1,000 Donation to the Green Political Party - £200 Donation to the RSPCB (Royal Society for the Prevention of Cruelty to Birds) - £300 Other expenses in this category are all allowable Note 7 – Travel costs Not included in the profit and loss account are travel expenses incurred during the course of business. They total £700 Note 8 – Capital Allowances Tax written down value b/f on the main pool was £64,500 She bought a building during the year worth £175,000 Requirement (a) Prepare the Adjustment to profit schedule. Please start with the Accounting Profit of £ 79,100 and list all items referred to in notes (1) – (8), and any other items that require adjustment, indicating with a zero (0) any items that do not require adjustment. (25 marks) (b) Explain to Anastasia the tax differences between trading as a sole trader, rather than through a company. (5 marks) (240 words) (Total: 30 marks) QUESTION 2 CAPITAL GAINS TAX Part (a) Lorna Curtail has decided that she would like to retire and write a novel. She has some investment assets that she would like to sell to fund this time off. She also mentioned in a telephone conversation to you that she has a sole trader business that she wants to give to her son. She is planning that if she gifts this business to him she can create a huge capital loss and then if there are any gains on the other assets she will not need to pay any capital gains tax. The information regarding the investment assets she plans to sell are as follows: 1. A painting that she purchased back in June 1989 at a cost £26,000. The expected sales value of this painting has increased to £120,000. She will need to incur 1% (including VAT) of the proceeds as auctioneer’s costs. 2. A beautiful vintage car that she bought for £15,000 in 2006 and is now worth £47,000 (after selling fees). 3. She has also managed to build up an impressive holding of shares in Exeter PLC. She will sell 20,000 shares from her total holding for £87,000. She purchased 6,000 shares for £8,000 in August 2006 and then in May 2008 she purchased a further 3,000 shares for £1.10 each. Finally in September 2010 she bought a further 15,000 shares for £26,000. Required: Calculate the gain on these investment assets and calculate how much capital gains tax there will be to pay for 2019/20 assuming her other income is £67,000 and she has made no other disposals during the tax year and state the date this will be due to be paid. (15 marks) Part (b) The sole trader business that she intends to give to her son includes a warehouse (which is chargeable to Capital Gains Tax). The current market value of the building is £365,000. It cost her £218,000 when she bought it in 2007. Required Write a letter to Lorna Curtail explaining the Capital Gains Tax implications of gifting the business to her son. You can use the numbers given to illustrate your answer. Mention to her any reliefs that may be available and explain why her plan of creating a loss is not effective for Capital Gains Tax purposes (NB Ignore Inheritance Tax). (15 marks) (200 words) (Total: 30 marks) QUESTION 3 CORPORATION TAX Part (a) Downtown Ltd, 100% owned by Emma Trumpton, began trading in 2006. It has prepared a short set of accounts for the nine-month period ended 31 December 2019 (the company has changed its accounting date). The following information is available: Trading profit The tax adjusted trading profit is £62,000; this has been calculated before taking into account capital allowances. Capital expenditure TWDV of the main pool as at the 1 April 2019 was £37,000 2 April 2019 purchased plant £15,000 8 June 2019 purchased company car for Emma (MD) £18,000 [Private use agreed at 25%], emissions 125 gms/km 8 August 2019 purchased pool car, emissions 100 gms/km £10,000 Loan interest received Loan interest of £12,000 was received on September 2019, and £6,000 was accrued at 31 December 2019. The loan is in respect of non-trading activities. Dividends received Downtown Ltd received a dividend of £36,000 on 15 November 2019 from Nostalgia Ltd, an unconnected UK company. Disposal of investment property Downtown Ltd sold an investment property on 15 October 2019 for £190,000, the property having been initially bought for £123,000 on 22 March 2006; an additional £22,000 was spent on building an extension on 16 August 2008. Additional information: (i) Downtown Ltd claims all available capital allowances as soon as possible and will make all available elections to do so. Downtown Ltd is a small company as defined by Companies Act. (ii) Emma Trumpton, owner of Downtown Ltd, is also the sole shareholder of two other UK trading companies. (iii) RPI Mar-06 195.0; RPI Aug-08 217.2; RPI Dec-17 278.1 [Tutorial Note: the RPIs to use will always be given in the exam] Required Calculate Downtown Ltd’s corporation tax liability for the nine-month period ended 31 December 2019. (20 marks) Part (b) Brighton Ltd is considering the purchase of another company, Bournemouth Ltd. This company can be bought for a reasonable price. The Directors of Brighton Ltd are convinced that with their management skills and a change in the company’s distribution and selling outlets the performance of the company could be dramatically improved. The added benefit might be, that all the bought forward trade losses this company has (currently standing at £625,000) could potentially be used to reduce taxable profits for a few years to come. Required: Write a letter to explain to the Directors of Brighton Ltd the tax implications and any considerations to take into account with the plan to use these bought forward losses. (10 marks) (300 words) (Total: 30 marks) Suggested Solutions for Mock exam BF2264 FA 2019 SFQS Q1 AIA/FYA TWDV b/f Note 1 Additions Balance P&M Balance adds MP 37,850 SRP 44,700 Claim 870,000 130,000 67,200 -1,000,000 Disposals 1,000,000 -26,500 TWDV before allowance 78,550 44,700 WDA 18%/6% -14139 -2682 TWDV c/f 64,411 42,018 16,821.00 TOTAL CLAIM FOR THE YEAR 1,016,821.00 (Tutorial note: This will now be used to set against the trading profit and reduce the tax base for the company) Q2 Deemed disposal Note 1 Total additions for AIA: SRP 870,000 P&M 180,300 van 16,900 1,067,200 Market Value Cost 275,000 -123,000 Potential gain: Gift relief: 152,000 -152,000 Taxable gain 0 As SRP has lowest allowance we will allocate AIA to that first then the balance of P&M will have to be added to the main pool and get the standard 18% WDA Note 2: This is a company question and so the personal usage is irrelevant Tutorial note: When you gift a business asset to a connected person then you are deemed to have sold the asset to that person at market value. HMRC have an entire department dedicated to valuing business assets for just such situations! So if the gift relief is claimed there is no tax to pay for Arthur For his daughter - she will now own the shares and the base cost of these shares will be Value of shares date of gift: Less gift relief claimed Base cost for future disposal: 275,000 Tutorial note: this means that in the future when she sells on these shares -152,000 she will at that point have a higher capital gain and so will pay more tax 123,000 at that point During 2019/20 there will be no tax for either Arthur or Valerie to pay Q3 Indicators of trade frequency of transactions manner acquired financing used additional work 2 marks each - max 8 For full marks add some explanation Q4 During the tax year Peter is only employed for 9/12 of the year £ Salary (£55,000 x 9/12) 41,250 BIK: Gym (Cost to employer) 300 Loan exempt as < £10k Property (see note) 9,197 Tutorial note: employment income is calculated per tax year So that is from 6 April - 5 April the following year. You are only taxed on what you actually earn during the year and the benefits you had during the year or part thereof if you do not enjoy the benefits for the whole tax year Note: property working Total employment income Charge: 50,747 (270,000 - 75,000) Same as the "use of asset" rule 1. Annual Value: 2. Expensive property 195000 2.75% 3. Furniture 11,000 20% 4,700 5362.5 2200 12,263 9/12 Q5 Cash based See Melville pages 476-478 Turnover less than £1,350,000 Returns up to date Automatic bad debt relief simpler Annual Accounting Same limits simpler On balance cash based 2 marks each Max 8 NB not flat rate scheme - the business is too big for that 9,197 Option Question 1 Sole trader - adjustment to profits Profit per the accounts Depreciation Son's salary Legal fees Chasing debts Employee contracts £ 79,100 27,000 18,000 4,000 Building - Own use telephone (55%) Own salary Renewal of double glazing Painting reception New desks Local gifts wine Donation to political party RSPB donation Travel costs Capital allowances (w1) 220 20,000 3,000 1,000 200 300 700 14,610 - Adjusted trading profit for tax: This is not a market rate and so would not be able to be an allowable expense Don't forget to show the zeros where no adjustment is required. You will also be earning marks for this A sole trader taking money out of the business (no matter what she calls it) will be deemed to be drawings. Not an improvement - simply maintaining the standard of the building Maintenance cost - this is allowable This is a capital cost not an expense. It is not an allowable deduction here. Relief via Capital Allowances Only donations to a small local charity are permitted - this is a national charity £137,510 w1 Building - no capital allowances w2 Capital allowances AIA b/f Desk No other adds/disposals This is the starting point for HMRC. Which expenses have been incurred to get to this profit level? Are they all permitted for the purpose of preparing the tax return? 3,000 3,000 MP 64,500 SRP - Total claim 3,000 WDA 18% Twdv c/f (b) Trading as a company v sole trader Max 5 marks No private use assets Profit calculation used to find CT liability No R&D tax credit for sole trader Salary not allowed as sole trader PAYE deducted from salary via company Other reasonble differences - 11,610 0 52,890 11,610 14,610 is profit level? CGT Option Question 2 (a) (W1) Painting Sales value: Expenses: Net SP Less M82 value Gain: (W2) Gain on the sale of shares: Sales proceeds: £87,000 Cost(see s104): -31,083 Gain Car s104 working: Total gains: AEA Taxable gains: £120,000 -£1,200 £118,800 -£26,000 92,800 148,717 -12,000 136,717 Tax at 20% 27,343 (no residential property or business assets in this disposal) Due 31 January 2021 55,917 Exempt Date Aug-06 May-08 Sep-10 Total: Disposal 19/20 Number of shares 6,000 3,000 15,000 24,000 £37,300 x 20/24 Cost of shares 8,000 3,300 26,000 37,300 -20,000 -31,083 4,000 6,217 31,083 (b) The proposed gift would not be effective as planned. Where the transaction is between connected persons (which mother and son are), actual proceeds changed for MV at transfer in order to calculate the gain. If the gain arising based on MV is left subject to tax at the point of making the gift, it will qualify for Entrepreneurs Relief and so be subject to CGT at 10% The alternative would be to claim gift relief, which would defer all the gain, leaving no tax paid by Lorna now but instead more tax will be paid by her son later. Mv at transfer original cost: £ 365,000 -218,000 Potential gain: 147,000 her son later. Corporation Tax (a) Calculation of the Liability Trade Income (W1) Non-trade interest receivable (W3) Dividend income exempt (not taxable for a company) Chargeable Gain (W4) Charitable Donation TTP Calculation of tax due: All FA19 therefore tax at 19% £ 39,845 18,000 57,845 10,991 Part (b) Losses Change in ownership Major change in the nature and conduct of trade (MCINCOT) Own company losses may be lost also b/f losses cannot be group relieved future losses can be group relieved Need at least 75% ownership Use numbers to illustrate style and presentation max 2 - explain why this will be deemed to be so (W4) Chargeable gain Sales Proceeds Cost Extension Unindexed gain IA on main cost 123,000 x ((278.1-195.0)/195.0)0.426 IA on extension 22,000 x ((278.1 – 217.2)/217.2)0.280 Chargeable gain: WORKINGS: (W1) Trading income Adjusted profit (per question) Less Capital allowances (W2) £ 62,000 -22,155 39,845 (W2) Capital allowances: AIA TWDV B/F Additions Plant (note) AIA claimed max: £1,000,000 x 9/12 Cars (<110g/km = main pool, >110g/km = SRP) Disposals Total to claim WDA WDA 18%/6% x 9/12 TWDV C/F MP 37,000 TOTAL CLAIMED SRP 0 15,000 -15,000 15,000 10,000 47,000 6,345 40,655 18000 18,000 810 17,190 7,155 22,155 (W3) Non-trade interest The £18,000 is all non-trade interest income all taxable Use the full accrued amount for the year i.e. cash received + accrued amount Not assessed on a cash only basis (W4) Chargeable gain Sales Proceeds Cost Extension Unindexed gain IA on main cost 123,000 x ((278.1-195.0)/195.0)0.426 IA on extension 22,000 x ((278.1 – 217.2)/217.2)0.280 Chargeable gain: £ 190,000 -123,000 -22,000 45,000 -52,398 -6,160 NIL Indexation allowance cannot create a capital loss MOCK EXAM 2 BF2264 2019/20 FA2019 Section A – there will be five (5) compulsory questions. They can be from ANY part of the syllabus. Worth 8 marks each i.e. 40% of the exam These questions are illustrative and similar in style to what you can expect to see. This part of the exam should take you approximately 50 minutes to complete. Keeping to time is an important skill to allow you to give an adequate attempt at all parts of the exam you are required to complete. QUESTION 1 Preeti started employment with GT Ltd on 1 June 2018. On this date, she was offered the following package: - Salary of £56,000 per annum - Relocation allowance of £5,000 to move from London up to Birmingham - Private medical insurance costing the company £350. If Preeti paid for this herself, it would have cost £500. - A diesel powered company car, which had emissions of 147g/km. The list price of the car is £32,000; however, the company acquired a discount and only paid £29,000 for it. The company pays for all fuel and Preeti contributed £25 a month for the use of the car. Required: What is Preeti’s total employment income figure ...
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