Trent runs a shop dealing in the sale of ready-made sports garments. His statement of profit or
Question:
Trent runs a shop dealing in the sale of ready-made sports garments. His statement of profit or loss for the year ended 31 May 2019 stood as follows:
£ £
Turnover 891,631
Cost of Sales 232,518
Gross Profit/Loss 659,113
EXPENSES
Wages and salaries 62,673
Other Staff Costs 7,438
Entertainment, gifts and donations 9,280
Stationery and Consumables 3,825
Security and cleaning services 2,801
Advertising & promotional expenses 4,132
Overseas Travelling Expenses 2,764
Legal and professional fees 3,677
Electricity, water and telephone charges 10,917
Rent 43,912
Insurance 1,315
Motor vehicle expenses 8,456
Repairs and maintenance 51,250
Depreciation 15,231
Bad debts 8,761
Subscriptions 9,860
246,292
Net Profit 412,821
The following additional information has been provided to you:
1. Wages and salaries include an annual salary of £8,500 & £9,000 paid to Trent’s wife and father respectively. His spouse works as driver whereas his father is the cashier of the shop. The other driver of the business, Paul, earns an annual salary of £6,500.
2. The other staff costs relate to costs incurred in transporting the employees from their residence to the shop and back.
3. Entertainment, gifts and donations consist of the following: £ Entertaining local customers 3,400 Entertaining foreign customers during their stay in UK 2,740 Donation to a charity where Trent received free advertising in the charity’s newsletter amounted to £680. This was not a qualifying charitable donation
4. Trent entered into an agreement with a private security company. The yearly package of £1,771 includes the provision of security services to both the residence and the shop. The charge for the office amounted to £1,202.
5. Cleaning services amounted to £ 1,030 and £30 related to the cleaning of Trent’s residence.
6. Trent had a business trip to France to meet his suppliers and this was included in the ‘Overseas Travelling Expenses’. The trip costed him £1,895. The rest was attributed to the holidays spent by Trent in Italy.
7. Legal and professional fees are made up as follows:
£
Debt collection service 1,296
Audit and accountancy 980
Lease on new premises 820
Defending Trent against a speeding fine 581
8. Trent resides with his family on the first floor of the building above the shop. Rental expenses relate to 40% for the shop whereas 80% of the electricity, water and telephone charges relate to the business.
9. Trent owns a car which he used partly for the business and partly for private purposes. It has been ascertained that 30% relates to personal use by Trent.
10. The motor vehicle expenses are exclusively made up of fuel expenses incurred by Trent’s car.
11. Repairs and maintenance are as follows:
£
Repainting the shop 7,430
Extending the building in order to create a new reception area 29,800
Renovation to the first floor of the building above the shop 8,020
Maintenance expenses to the car 6,000
12. A debt of £860 previously written off has been recovered in the income year ended May 2019. Same has been omitted in the profit or loss statement of Trent.
13. During the year ended 31 May 2019, Trent took goods out of the shop for his personal use without paying or accounting for them. The cost of these was £430, and they had a selling price of £630.
14. Trent is entitled to a capital allowance of £13,060 attributed to the car.
REQUIRED
Calculate Trent’s tax-adjusted trading profit for the year ended 31 May 2019.
Expert Answer:
Answer Solution Particulars Amount Profit before tax PBT Operating profit 41282100 Add Disallowed expenses Depreciation as per books 1523100 Excess payment of salary to spouse Note 1 200000 Entertaini... View the full answer
