Fashion Line Ltd is a UK resident company. Company prepares its accounts to 31 March each year.
Question:
Fashion Line Ltd is a UK resident company. Company prepares its accounts to 31 March each year. The statement of profit or loss prepared in accordance with the international financial reporting standards (IFRS) for the year ended 31 March 2021 is given below:
£ £
Sales 18,500,000
Cost of goods sold (14,500,000)
Gross margin 4,000,000
Operating expenses:
Impaired trade debt (Note 1) 20,500
Selling costs (Note 2)200,500
Legal, professional and trade fees (Note 3) 92,800
Repairs and renewals (Note 4) 65,300
Vehicles maintenance (Note 5)225,000
Leasing cost-motor cars (Note 6) 24,200
Depreciation 310,000
Employee costs (Note 7) 1,305,800
Rent cost (Note 8) 320,000
Other expenses (Note 9) 588,900
(3,153,000)
Operating profit 847,000
Other income:
Rental income (Note 10) 56,350
Bank interest received (Note 11) 32,000
Dividends received (Note 12) 141,650 230,000
Finance costs
Interest expenses (Note 13) (67,500)
Profit before taxation 1,009,500
Notes:
1. Impaired trade debt
On 31 December 2020, Fashion Line Ltd wrote off an impairment loss of £20,500 in respect of
an invoice.
2. Selling costs
Selling costs include:
Gifts to the customers (wall clocks bearing company name costing
£65 per customer) £9,000
Advertising and promotions £60,500
Entertaining UK customers 7,500
Entertaining overseas customers 7,500
Gifts to suppliers 12,500
3. Legal, professional and trade fees
Fee paid for accounting and audit services £18,000
Annual subscription to business and trade association 2,000
Legal fee in connection with the trade financing (Note 13) 8,700
Charges paid for debt collections 15,000
Legal fee in connection with acquiring and registering new vans21,300
Legal fees in connection with a new 40-year lease 7,500
Professional fee paid to counsellor hired for terminated employees 20,300
92,800
4. Repairs and renewals:
Annual heating maintenance charges for company premises
(cover the period from 1 April 2020 to 31 March 2021) £35,000
Repainting business premises 13,500
Built new offices for the staff 16,800
65,300
5. Vehciles maintenance
Include fuel cost and the cost of maintaining company’s vans and motor cars.
All motor cars are used for 30% private mileage by the employees and directors.
6. Leasing cost-motor cars
The leasing cost reported on the statement of profit or loss is in respect of the following two motor cars:
i). Motor car that has CO2 emissions of 125 grams per kilometer, leasing cost £14,200
ii). Motor car that has CO2 emissions of 80 grams per kilometer, leasing cost £10,000
7. Employee costs
Employee costs include:
Fashion Line Ltd’s national insurance contributions £80,500
Annual staff party (entertainment of employees)£21,300
Gifts to the employees 7,000
8. Rent cost
Include rent paid for the rented business premises.
9. Other expenses
Other expenses include:
Donations to M&M Foundation (an approved charity), company received
a free advertisement in the charity’s monthly magazine £11,500
Donations to approved charities (qualifying) 10,000
Political donations 8,500
Fine for health and safety breach 4,200
Penalty on late payment of taxes to HMRC 800
10. Rental income
Rental income is received in respect of an office space let out by the company to anunconnected entity. The amount of rental income reported in the statement of profit orloss is the amount taxable for the financial year 2020.
11. Bank interest
The bank interest was received on 31 March 2021. The bank deposits are held for non-trading purposes.
12. Dividends
Dividends reported in the statement of profit or loss were received from another UKresident company.
13. The interest payable is in respect of the company’s 3% loan stock. The loan stock wasused to finance the company’s trade activities. The interest amount given in the statementof profit or loss is the amount accrued on 31 March 2021.
14. The tax written down value of Fashion Line’s main pool assets on 1 April 2020 was £1,500,000. Following assets were acquired and disposed during the year to 31 March 2021:
Acquisitions:
1 May 2020 Purchased vans £342,000
1 July 2020 Purchased new motor car CO2 emissions 45g/km 7,500
4 Sep 2020 Purchased motor car CO2 emissions 100g/km 21,800
5 Dec 2020Purchased equipment 18,400
Disposals:
10 Jan2021Sold a motor car CO2 emissions 95 g/km 4,000
5 March 2021Sold equipment 11,200
Original costs of motor car and equipment sold are £8,400 and £9,000 respectively.
Assume, Fashion Line Ltd has no special rate pool item.
Tasks:
a. Assess tax adjusted trading profit using the information given in statement of profit or loss and notes for Fashion Line Ltd for the year ending on 31 March 2021. Start with the profit before taxation figure of £1,009,500 and list all of the items in the statement of profit and loss and in notes indicating by the use of a zero (0) any items that do not require adjustment. Assume that Fashion Line Ltd claims maximum available capital allowances.
b. Assess taxable total profits for the period ended 31 March 31, 2021.
c. Assess Fashion Line Ltd.'s corporation tax liability for the period ended 31 March 2021.
