Fran has provided the following information: MT Ltd made a net profit for the year ended 31
Question:
Fran has provided the following information:
MT Ltd made a net profit for the year ended 31 March 2021 of £55,000.
The following costs and income were included in this calculation of net profit in the statement of profit or loss:
Costs
£ | |
Interest and costs of raising loans to buy | |
| 3,000 |
| 7,900 |
Total interest cost | 10,900 |
Wages of research staff and materials – eligible for enhanced R&D relief | £ 110,000 |
General overheads – not eligible for enhanced R&D relief | 10,000 |
Total research costs in the profit or loss | 120,000 |
MT Ltd is an SME for the purpose of R&D relief. | |
£ | |
Repairs to machinery used in production of synthesisers | 17,000 |
*Repairs to equipment bought by MT Ltd in the year ended 31 March 2021 (see note 2 below) | 8,000 |
Total repair cost in the profit or loss | 25,000 |
£ | |
Specific trade receivable allowance | 50,000 |
General trade receivable allowance | 14,000 |
Trade receivable allowance cost | 64,000 |
£ | |
Depreciation | 37,000 |
Legal fees (see note 5) Income Bank interest received | 10,000 £ (2,845) |
Profit on disposal of head office building | (60,000) |
Notes: Other information
- The profit for the year includes an amortisation charge for the Retro-Synth technology of £18,000. MT Ltd has elected to claim a 4% writing down allowance on the £180,000 cost of the intangible asset.
- The brought forward balance on the main pool for capital allowances at 1 April 2020 is £7,000. MT Ltd bought computer equipment for £50,000. MT Ltd also bought some machines for £265,000. Before the equipment could be used, MT Ltd spent £8,000 on a repair. This cost has been included in repairs in the statement of profit or loss (see above*). The computer equipment and machines are not used for R&D purposes. MT Ltd did not make any disposals.
- MT Ltd owns 75% of the shares in Music Ltd. Music Ltd made a trading profit for the year ended 31 March 2021 of £50,000. Music Ltd made a claim for AIA of £2,000.
- The head office building was sold on 1 January 2021 for £245,000. Legal costs were £10,000 and are included in administrative expenses in the profit or loss. The building was purchased for £185,000 on 1 October 201
Required:
- Calculate the trading loss, chargeable gain and the non trading loan relationship deficit for MT Ltd for the year ended 31 March 2021. Assume that MT Ltd makes all beneficial claims and elections.
- Explain how MT Ltd can use any tax losses it has made in the year ended 31 March 2021. Include an explanation of the tax implications of MT Ltd’s shareholding in Music Ltd.
Accounting For Cambridge International AS And A Level
ISBN: 9780198399711
1st Edition
Authors: Jacqueline Halls Bryan, Peter Hailstone