Accounting Taxation Assignment
Question 1- Taxation MCQs
1.1 Claire receives building society interest income of £20,000. She has no other source of income. What is her income tax liability?
ü £1,286
£1,386
£1,486
£1,540
£4,000
£20,000 – (£1,000 savings allowance and £12,570 personal allowance) = £6,430. £6,430 taxed at 20% = £1,286
2 marks
1.2 Fred, aged 30, has gross earned income of £73,000. He has no other income. How much of his income will be taxed at 40%?
ü £22,730
£35,300
£37,700
£60,430
£73,000
£73,000 – £12,570 personal allowance = £60,430.
£60,430 – £37,700 = £22,730 taxed at 40%
2 marks
1.3
Last year, Anne made a gift of £20,000 to her son. She has made no other lifetime transfers. What amount will HMRC value the gift to her son for IHT purposes if she were to die tomorrow?
£0
ü £14,000
£17,000
£20,000
£305,000
£20,000 – £6,000 (2 annual exemptions) ie at £14,000
2 marks
1.4 Ben, (who had made no lifetime gifts), died leaving his entire net estate of £550,000 to his wife. How much Inheritance Tax will be payable?
ü £0
£20,000
£90,000
£155,000
£220,000
Spouse Exemption will apply.
2 marks
Accounting Taxation Assignment
1.5 Fifteen years ago Belinda, a higher rate taxpayer, bought the house in which she lives for £165,000. In November this year she sold the house for £300,000. How much CGT will she have to pay?
ü £0
£13,500
£24,300
£24,540
£27,000
Main residence relief applies.
2 marks
Question 2 Short Answer Questions on Income Tax, Capital Gains Tax and Inheritance Tax
2.1 Mr A is 45 years old. He has a total income from his sole trader business of £65,000. This year he borrowed £30,000 from the bank at an interest rate of 5% to improve all the fixtures and fittings in the shop.
Calculate the tax due on his income.
Income £65,000
Less charge on income (1,500)
Less personal allowance (12,570)
Taxable income £50,930
37,700 @ 20% = £7,540
£50,930 – £37,700 = £13,230
£13,230 @ 40% = £5,292
Tax due on income = £12,832 4 marks
2.2. This year, Ms C (who had made no previous lifetime transfers) made a gift to her daughter of £10,000. If she were to die tomorrow, what is the amount of the nil rate band which would be applied to her estate?
£10,000 – £6,000 (2 annual exemption) = £4,000
£325,000 – £4,000 = £321,000 NRB available 3 marks
2.3. In this question, assume Margaret’s husband’s inheritance tax allowance was fully utilised when he died.
Margaret gave £150,000 to her daughter Daisy last year and £350,000 to her son Crispin this year. If Margaret were to die tomorrow, having an estate valued at £450,000, comprising building society accounts only:
- a)How much inheritance tax would be due in respect of the lifetime gifts to her children?
Accounting Taxation Assignment
Margaret died within 7 years of the gifts
Last year’s gift of £150,000- £6,000 annual exemptions (because no gifts the previous year so we have two annual exemptions to use) = £144,000
This year’s gift of £350,000- £ 3,000 annual exemption = £347,000
Total PETS= £491,000 – £325,000 NRB = £166,000 x 40% = £66,400 payable by her son Crispin. The first gift to the daughter fell within the nil rate band. (3 marks)
- b)How much IHT would be payable in respect of Margaret’s estate?
All the NRB used by the lifetime gifts to her children therefore her estate of £450,000 is taxed @ 40% = £180,000 IHT due.
(2 marks)
5 marks in total
2.4 Andrew is the executor of his mother’s estate. During the administration period he sold his mother’s house. The house was valued at £150,000 when his mother died and £200,000 when it was sold in September this year. No other gains were made during the tax year. How much CGT will be payable?
Gain of £50,000 (200,000 – 150,000)
£50,000 – £6,000 = £44,000 x 20% = £8,800 3 marks
2.5 Chris sold some investments 20 years ago and made a capital loss of £5,000. His only capital gain of £32,000 was made this year. His taxable income this year is £30,370.
How much CGT will he have to pay? 5 marks
Gain of £32,000- loss £5,000 = £27,000
£27,000 – £6,000 annual exemption = £21,000 taxable capital gain
£37,700-£30,370 income= £7,330 of the capital gain taxed at the lower rate:
£7,330 @ 10% = £733
21,000 – 7,330 (to find the amount of the gain that has not yet been taxed) =
£13,670 @ 20% = £2,734
Total CGT due = £3,467
Total 20 Marks
Accounting Taxation Assignment
Question 3 – Accounts Leek Road Nurseries
Appropriation account
Net Profit 380,000
| Rachael | Alan | Frank |
|
||
| Salary | 16,000 | 16,000 | |||
| Interest | 14,000 | 10,000 | 10,000 | 34,000 | |
| Profits | 165,000 | 82,500 | 82,500 | 330,000 | |
| 195,000 | 92,500 | 92,500 | 380,000 |
5 marks
Movements on Current Accounts
| Rachael | Alan | Frank | |
| £ | £ | ||
| Opening Balances | 34,000 | 25,000 | 25,000 |
| Profits, salary & interest | 195,000 | 92,500 | 92,500 |
| Drawings | (76,000) | (50,000) | (50,000) |
| 153,000 | 67,500 | 67,500 |
5 marks
Leek Road Nurseries
Balance Sheet as at 31 December 2022
Accounting Taxation Assignment
| £ | £ | £ | ||||||
| CAPITAL EMPLOYED | ||||||||
| Capital | ||||||||
| Rachael | 140,000 | |||||||
| Alan | 100,000 | |||||||
| Frank | 100,000 | 340,000 | ||||||
| Current | ||||||||
| Rachael | 153,000 | |||||||
| Alan | 67,500 | |||||||
| Frank | 67,500 |
|
||||||
| EMPLOYMENT OF CAPITAL | ||||||||
| Fixed Assets | ||||||||
| Premises | 420,000 | |||||||
| Computers | 160,000 | |||||||
| Depreciation (40,000+40,000) | (80,000) | 80,000 | ||||||
| Fixtures | 30,000 | |||||||
| Depreciation on Fixtures (12,000+3,000) | (15,000) | 15,000 |
515,000 |
|||||
| Current Assets | ||||||||
| Work in progress | 100,000 | |||||||
| Debtors
Bad debts |
179,000
(59,000) |
|||||||
| Less provision | (12,000) | 108,000 | ||||||
| Cash – Office | 33,000 | |||||||
| Prepayments(rent) | 20,000 | 53,000 | ||||||
| 261,000 | ||||||||
| Current Liabilities | ||||||||
| Creditors | (136,000) | |||||||
| Accruals( electric) | (12,000) | |||||||
| (148,000) | ||||||||
| Net Current Assets | 113,000 | |||||||
| Total Net Assets | 628,000 | |||||||
20 marks
Accounting Taxation Assignment
Total 30 Marks
Question 4 – Company Accounts
4.1) In a public limited company, explain which officers are responsible for:
- a) Ensuring the preparation of the company’s financial statements
- b) Checking that the financial statements give a “true and fair view” of the company’s position at the end of the financial year.
- a) The directors – provide detailed explanation.
- b) The auditors –as above.
(6 marks)
4.2) What could a high figure (over 60 days for example) for the debtors’ collection period indicate in a company?
That the company has poor credit control. It may not be issuing invoices quickly and/or not chasing debtors for payment. This needs to be reviewed.
(6 marks)
4.3) The balance sheet for Garden Adventure Ltd shows the following figures for the current financial year:
|
Current assets Debtors £70,700 |
|
| Cash at bank £60,000 | |
| Stock £40,000 | |
| Current liabilities | |
| Creditors 25,000 | |
| Bank overdraft 36,000 |
What would the results of applying the acid test ratio show? Please show your calculations and explain what the figure represents.
Current assets – stock £130,700 = 2.14:1
Current liabilities 61,000
The acid test is a ratio indicating whether or not a company is solvent ie if it could pay the debts if they were called in immediately. The indication in this case is that there would be £2.14 of assets to cover each £1 of liabilities. This is a satisfactory acid test ratio.
This ratio is usually used in conjunction with the current ratio, the difference being that in the acid test the value of the stock is not included as this is often the least accurate figure.
(8 marks)
Total 20 Marks
Accounting Taxation Assignment
Question 5: Corporation Tax Walters and Shaw Limited
Trading profit £ £
Gross profit 2,500,000
Less
Salaries (200,000)
General overheads (260,000)
Advertising campaign (10,000) (470,000)
Trading profit 2,030,000
Capital Allowances
Precision carving machine AIA* (950,000)
Pool: 18% allowance on £17,000 (3,060)
Total allowances (953,060)
Net trading profit 1,076,940
Sale of land
Gain 60,000
Professional fees (15,000)
Indexation (10,000)
35,000
Capital loss (30,000)
Capital gain 5,000
Net trading profit 1,076,940
Plus capital gain 5,000
1,081,940
Less
Trading loss c/f (25,000) (25,000)
Profit subject to corporation tax 1,056,940
Calculate the corporation tax due
£1,056,940 x 25% = £264,235 corporation tax due
Note –
The dividend and entertaining customers are not allowable deductions.
Capital losses c/f against capital gains in future years. 20 Marks
*Long life asset
Use APA referencing style.