Hi Spirit Limited is a UK resident company. The company trades in a wide range of...

 

 
 
   

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Hi Spirit Limited is a UK resident company. The company trades in a wide range of musical instruments and all goods are taxable unless stated otherwise. Hi Spirit Limited buys instruments from a local manufacturer for sale in England & Wales. Hi Spirit Limited does not Loan interest (Note 17) 8.300 72,800 Profit before taxation 1,076,290 export their products overseas. Notes: Hi Spirit Limited prepares its accounts to 31 March each year. The detailed statement of profit Note#1. High Spirit Limited or loss for the year ended 31 March 2020 is given below: Hi Spirit Limited distributes musical instruments through 8 stores located across the England and Wales, of those 6 stores are owned by the company and remaining 2 are rented premises. Company has recruited 83 employees for purchase, and sales of its products including those in Sales revenues, net (Note 2) 13,647,000 its main office for administration. Cost of goods sold (Note 3) 10.214,720) Notet2. Sales revenues, net Gross profit 3,432,280 Monthly sales for the year ending on 31 March 2020 are given below. All sales are standard- Operating expenses: rated. Most of the sales are on cash except those made to its customers in entertainment Rent expenses (Note 4) 115.000 industry. Credit sales offer 3% discount for a prompt payment (made within 15 days of the Repairs and renewals (Note 5) 68,610 issuance of the invoices). General & administrative (Note 6) 900.000 Sales figures in below given table are before any prompt payment discount. Depreciation 250.000 Fees, fines and charges (Note 7), _ 54,650 Month Sales discount Sales discount Total Gifts and donations (Note 8) 60.230 Distribution costs (Note 9) 792,300 not taken taken Sales Impaired trade debts (Note 10) 39,500 Apr-19 1,134,500 214,000 1,348,500 Vehicles maintenance (Note 11) 110.000 May-19 1,166,590 60,000 1,226,590 Leasing cost (Note 12) 13.500 Jun-19 1,090,654 331,500 1,422,154 (2,403,790) Jul-19 1,076,500 445,500 1,522,000 Interest cost (Note 13) 125,000) Other income: Aug-19 1,076,200 55,300 1,131,500 Property income (Note 14) 35,000 Sep-19 1,110,100 1,110,100 Bank interest (Note 15) 8,500 Oct-19 990,400 195,000 1,185,400 Dividends (Note 16) 21,000 Nov-19 782.230 66.230 848,460 Page 3 of 12 Page 4 of 12 Dec-19 1,104,000 205,430 1,309,430 Oct-19 502,346 25,117 527,463 Jan-20 890,000 890,000 Nov-19 623,654 31,183 654,837 Feb-20 786,230 93,596 879,826 Dec-19 815,000 32,600 40,750 888,350 Mar-20 716,337 110,000 826,337 Jan-19 612,400 6,700 30,620 649,720 Total 11,923,741 1,776,556 13,700,297 Feb-19 590,000 14,320 29,500 633,820 Mar-19 712,880 35,644 748,524 Sales revenues amount given in the statement of profit or loss is the net of discounts and has Total 10,008,200 126,520 500,000 10,634,720 been computed as follows: £ Gross Sales revenues 13,700,297 Inventories April 1, 2019 550,000 Less: sales discount (1,776,556 x 0.03) (53,297) Add: Cost of goods purchased Sales revenues, net 13,647,000 Purchases 10,634,720 Purchase discount (126,520 x 2%) (2.530) Note#3. Cost of goods sold 10,632,190 Costs of goods sold includes payments to suppliers and other costs directly associated with Ending inventories March 31, 2020 (967,470) procuring inventories. Hi Spirit Limited purchases goods on credit of 60 days and is offered a Cost of goods sold 10,214,720 discount of 2% for payments made within 30 days. All purchases and costs of acquiring goods are standard rated. Note#4. Rent expenses Rent was paid in respect of two stores rented for the business purposes. The rent amount Quarter Purchases Purchases Cost of Total reported in the statement of profit or loss relates to the year ended 31 March 2020. (discount not acquiring inventories availed) (discount availed) Note#5. Repairs and renewals Apr-19 910,300 30,500 45,515 986,315 Repairs and renewals include: May-19 801,900 40,095 841,995 Construction of new block for the staff in the main office £32,210 Jun-19 1,205,400 12,000 60,270 1,277,670 Repainting of the company owned stores 21,300 Jul-19 1.700,200 8,800 84,600 1,793,600 Repainting of the rented stores (amount was deducted from the rent Aug-19 784,000 21,600 39,200 844,800 payable to the landlord as per arrangement with the landlord, Sep-19 750,120 37,506 787,626 amount of rent exp. reported is the net of this deduction, See note# 4) 8.100 Page 5 of 12 Page 6 of 12 Annual heating maintenance charges for the company owned premises 7,000 Note#8. Gifts and donations 68,610 Qualifing charitable donations £11,080 Note#6. General and administartive expenses Political donations 5,000 General and administartive expenses include: Donation to Rahim Welfare, a local approved charity Employee salaries and compenstaion £790,000 (Hi Spirit Limited received free advertisement in the charity's magazine) 12,000 Employer's national insurance contributions 14,000 Gifts to the customers (100 diaries bearing company name costing Other general and administrative (all allowable) 96.000 £60 per donee) 6,000 900,000 Gifts to customers (wall clocks bearing company names and costing Note#7. Fees, fines and charges £20 per donee) 5,350 Accounting and audit fees £9,500 Food vouchers gifted to loyal customers 2,000 Fee paid for debt collection 5,000 Staff party, cost £150 per person 12,450 Legal fee in connection with the trade financing (Note 13) 6,200 Gifts to high performing employees 6,350 Legal fee in connection with the issue of new shares 7,400 60,230 Legal fee in connection with acquiring and registering new vans 5,600 Note#9. Distribution costs Fee paid for professional counselling of terminated staff 3,000 Distribution costs include: Fee paid for employees training and professional development 2,500 Advertising and promotions £475,000 Legal fees in connection with renewing a 25-year lease 3,100 Entertaining UK customers 4,300 Legal fees in connection with a new 50-year lease 5,550 Other distribution costs (all allowable) 313,000 HMRC penalties on late payments and filing 4,300 792,300 Legal fee in connection with a fine on noncompliance of COVID-19 Note#10. Impaired trade debts Restrictions 2.500 By 31 March 2020, Hi Spirit Limited has written off impairment losses in respect of following 54,650 two invoices: 1. Invoice originally due on 9 January 2020, issued to New Royal Troupe for £31,000 2. Invoice originally due on 10 August 2019, issued to Channel Entertainment Company for £8,500. Page 7 of 12 Page 8 of 12 HIGHER COLLEGES OF TECHNOLOGY Y HIGHER COLLEGES OF TECHNOLOGY Note#11. Vehicle Maintenance Note#17. Loan interest Hi Spirit Limited owns and maintains vehicles for transporartion of goods from premises of Loan stocks are held for investment purposes. The amount of loan interest reported in the manufacturer to the stores and stores to clients if needed. Vehicle manintennace include statement of profit or loss is the amount accrued on 31 March 2020 and related to the period fuel cost and other costs of maintaining company's vans. ending on 31 March 2020, Note#12. Leasing cost Note#18. Plant and machinery The leasing cost of £13,500 was paid in respect of two motor cars under the use of company The tax written down value of Hi Spirit Limited's main pool assets on 1 April 2019 was employees for business purposes: £1,350,000. Following main pool items were purchased and disposed during the year to 31 1. Car which has CO2 emissions of 100 grams per kilometer, lease cost £7,500 March 2020: 2. Car which has CO2 emissions of 120 grams per kilometer, lease cost £6,000 15 July 2019 Purchased a van £75.000 9 Sept 2019 Purchased motor car CO2 emissions 100g/km 12,500 5 Dec 2019 Sold a repairing equipment (original cost £9,000) (10,000) Note#13. Interest cost The interest cost is in respect of the company's 4% loan stock. The loan stock was used to 20 Feb 2020 Sold a van (original cost £31,800) 124,000) finance the company's trade activities. The interest amount given in the statement of profit and All transactions of sales and purchases given in this note are subject to standard rate of VAT. loss has been paid and is the amount relevant to the accounting period ended 31 March 2020. Note#19. Note#14. Income from property Company's VAT periods end on 30 June, 30 September, 31 December and 31 March every year. Hi Spirit Limited let out office space surplus to its requirements on 1 April 2019 to an For the purpose of computing VAT liability, monthly data of taxable expenses and supplies unconnected firm. The tenant paid the rent in 4 equal payments between 1 April 2019 and 31 included in the statement of profit or loss is as follows. March 2020. The amount of rental income reported in the statement of profit or loss is the taxable rental income in this regard. Quarter Standard rated zero rated Total expenses & supplies expenses & supplies Note#15. Bank interest Apr-19 150,540 12,300 162,840 The bank interest relates to the year ended 31 March 2020. The bank deposits are held for non- May-19 110,430 15,900 126,330 trading purposes. Jun-19 145,000 7,230 152,230 Note#16. Dividends Jul-19 119,000 6,000 125,000 Dividends of £21,000 were received from another UK resident company. Aug-19 144,210 4,902 149,112 Page 9 of 12 Page 10 of 12 ER COLLEors oF re OLOY n COLLE or TEOLOGY Required: Sep-19 91,432 91,432 a. Oct-19 89,600 6,543 96,143 Assess tax adusted trading profits using the information given in statement of profit or loss and Nov-19 64,300 13,000 77,300 notes for Hi Spirit Limited Ltd for the year ended 31 March 2020. Start with the profit before Dec-19 105,340 2,500 107,840 taxation of £1,076,290 and list all of the items in the statement of profit and loss and in notes Jan-19 82,876 7,456 90,332 indicating by the use of a zero (0) any items that do not require adjustment. Assume that the Feb-19 86,000 3,240 89,240 company claims maximum available capital allowances. (11.5 marks) Mar-19 95,980 8,100 104,080 b. Total 1,284,708 87,171 1,371,879 Assess taxable total profits for the period ended 31 March 2020. (1 marks) c. Assess Hi Spirit Limited's corporation tax liability for the period ended 31 March 2020. (0.5 marks) d. Assess Hi Spirit Limited's VAT liability for the quarters ended on 30 June 2019, 20 September 2019, 31 December 2019 and 31 March 2020. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible. (11 marks) By when and how, should Hi Spirit Ltd file the corporate tax return and pay the tax payable for the period ended 31 March 2020 to avoid penalties and interests? Until when the accounting records relevant to the tax year 2019/20 must be kept by Hi Spirit Ltd? Explain in detail with reference to the tax rules and HMRC's directives. (1 mark) Hi Spirit Limited is a UK resident company. The company trades in a wide range of musical instruments and all goods are taxable unless stated otherwise. Hi Spirit Limited buys instruments from a local manufacturer for sale in England & Wales. Hi Spirit Limited does not Loan interest (Note 17) 8.300 72,800 Profit before taxation 1,076,290 export their products overseas. Notes: Hi Spirit Limited prepares its accounts to 31 March each year. The detailed statement of profit Note#1. High Spirit Limited or loss for the year ended 31 March 2020 is given below: Hi Spirit Limited distributes musical instruments through 8 stores located across the England and Wales, of those 6 stores are owned by the company and remaining 2 are rented premises. Company has recruited 83 employees for purchase, and sales of its products including those in Sales revenues, net (Note 2) 13,647,000 its main office for administration. Cost of goods sold (Note 3) 10.214,720) Notet2. Sales revenues, net Gross profit 3,432,280 Monthly sales for the year ending on 31 March 2020 are given below. All sales are standard- Operating expenses: rated. Most of the sales are on cash except those made to its customers in entertainment Rent expenses (Note 4) 115.000 industry. Credit sales offer 3% discount for a prompt payment (made within 15 days of the Repairs and renewals (Note 5) 68,610 issuance of the invoices). General & administrative (Note 6) 900.000 Sales figures in below given table are before any prompt payment discount. Depreciation 250.000 Fees, fines and charges (Note 7), _ 54,650 Month Sales discount Sales discount Total Gifts and donations (Note 8) 60.230 Distribution costs (Note 9) 792,300 not taken taken Sales Impaired trade debts (Note 10) 39,500 Apr-19 1,134,500 214,000 1,348,500 Vehicles maintenance (Note 11) 110.000 May-19 1,166,590 60,000 1,226,590 Leasing cost (Note 12) 13.500 Jun-19 1,090,654 331,500 1,422,154 (2,403,790) Jul-19 1,076,500 445,500 1,522,000 Interest cost (Note 13) 125,000) Other income: Aug-19 1,076,200 55,300 1,131,500 Property income (Note 14) 35,000 Sep-19 1,110,100 1,110,100 Bank interest (Note 15) 8,500 Oct-19 990,400 195,000 1,185,400 Dividends (Note 16) 21,000 Nov-19 782.230 66.230 848,460 Page 3 of 12 Page 4 of 12 Dec-19 1,104,000 205,430 1,309,430 Oct-19 502,346 25,117 527,463 Jan-20 890,000 890,000 Nov-19 623,654 31,183 654,837 Feb-20 786,230 93,596 879,826 Dec-19 815,000 32,600 40,750 888,350 Mar-20 716,337 110,000 826,337 Jan-19 612,400 6,700 30,620 649,720 Total 11,923,741 1,776,556 13,700,297 Feb-19 590,000 14,320 29,500 633,820 Mar-19 712,880 35,644 748,524 Sales revenues amount given in the statement of profit or loss is the net of discounts and has Total 10,008,200 126,520 500,000 10,634,720 been computed as follows: £ Gross Sales revenues 13,700,297 Inventories April 1, 2019 550,000 Less: sales discount (1,776,556 x 0.03) (53,297) Add: Cost of goods purchased Sales revenues, net 13,647,000 Purchases 10,634,720 Purchase discount (126,520 x 2%) (2.530) Note#3. Cost of goods sold 10,632,190 Costs of goods sold includes payments to suppliers and other costs directly associated with Ending inventories March 31, 2020 (967,470) procuring inventories. Hi Spirit Limited purchases goods on credit of 60 days and is offered a Cost of goods sold 10,214,720 discount of 2% for payments made within 30 days. All purchases and costs of acquiring goods are standard rated. Note#4. Rent expenses Rent was paid in respect of two stores rented for the business purposes. The rent amount Quarter Purchases Purchases Cost of Total reported in the statement of profit or loss relates to the year ended 31 March 2020. (discount not acquiring inventories availed) (discount availed) Note#5. Repairs and renewals Apr-19 910,300 30,500 45,515 986,315 Repairs and renewals include: May-19 801,900 40,095 841,995 Construction of new block for the staff in the main office £32,210 Jun-19 1,205,400 12,000 60,270 1,277,670 Repainting of the company owned stores 21,300 Jul-19 1.700,200 8,800 84,600 1,793,600 Repainting of the rented stores (amount was deducted from the rent Aug-19 784,000 21,600 39,200 844,800 payable to the landlord as per arrangement with the landlord, Sep-19 750,120 37,506 787,626 amount of rent exp. reported is the net of this deduction, See note# 4) 8.100 Page 5 of 12 Page 6 of 12 Annual heating maintenance charges for the company owned premises 7,000 Note#8. Gifts and donations 68,610 Qualifing charitable donations £11,080 Note#6. General and administartive expenses Political donations 5,000 General and administartive expenses include: Donation to Rahim Welfare, a local approved charity Employee salaries and compenstaion £790,000 (Hi Spirit Limited received free advertisement in the charity's magazine) 12,000 Employer's national insurance contributions 14,000 Gifts to the customers (100 diaries bearing company name costing Other general and administrative (all allowable) 96.000 £60 per donee) 6,000 900,000 Gifts to customers (wall clocks bearing company names and costing Note#7. Fees, fines and charges £20 per donee) 5,350 Accounting and audit fees £9,500 Food vouchers gifted to loyal customers 2,000 Fee paid for debt collection 5,000 Staff party, cost £150 per person 12,450 Legal fee in connection with the trade financing (Note 13) 6,200 Gifts to high performing employees 6,350 Legal fee in connection with the issue of new shares 7,400 60,230 Legal fee in connection with acquiring and registering new vans 5,600 Note#9. Distribution costs Fee paid for professional counselling of terminated staff 3,000 Distribution costs include: Fee paid for employees training and professional development 2,500 Advertising and promotions £475,000 Legal fees in connection with renewing a 25-year lease 3,100 Entertaining UK customers 4,300 Legal fees in connection with a new 50-year lease 5,550 Other distribution costs (all allowable) 313,000 HMRC penalties on late payments and filing 4,300 792,300 Legal fee in connection with a fine on noncompliance of COVID-19 Note#10. Impaired trade debts Restrictions 2.500 By 31 March 2020, Hi Spirit Limited has written off impairment losses in respect of following 54,650 two invoices: 1. Invoice originally due on 9 January 2020, issued to New Royal Troupe for £31,000 2. Invoice originally due on 10 August 2019, issued to Channel Entertainment Company for £8,500. Page 7 of 12 Page 8 of 12 HIGHER COLLEGES OF TECHNOLOGY Y HIGHER COLLEGES OF TECHNOLOGY Note#11. Vehicle Maintenance Note#17. Loan interest Hi Spirit Limited owns and maintains vehicles for transporartion of goods from premises of Loan stocks are held for investment purposes. The amount of loan interest reported in the manufacturer to the stores and stores to clients if needed. Vehicle manintennace include statement of profit or loss is the amount accrued on 31 March 2020 and related to the period fuel cost and other costs of maintaining company's vans. ending on 31 March 2020, Note#12. Leasing cost Note#18. Plant and machinery The leasing cost of £13,500 was paid in respect of two motor cars under the use of company The tax written down value of Hi Spirit Limited's main pool assets on 1 April 2019 was employees for business purposes: £1,350,000. Following main pool items were purchased and disposed during the year to 31 1. Car which has CO2 emissions of 100 grams per kilometer, lease cost £7,500 March 2020: 2. Car which has CO2 emissions of 120 grams per kilometer, lease cost £6,000 15 July 2019 Purchased a van £75.000 9 Sept 2019 Purchased motor car CO2 emissions 100g/km 12,500 5 Dec 2019 Sold a repairing equipment (original cost £9,000) (10,000) Note#13. Interest cost The interest cost is in respect of the company's 4% loan stock. The loan stock was used to 20 Feb 2020 Sold a van (original cost £31,800) 124,000) finance the company's trade activities. The interest amount given in the statement of profit and All transactions of sales and purchases given in this note are subject to standard rate of VAT. loss has been paid and is the amount relevant to the accounting period ended 31 March 2020. Note#19. Note#14. Income from property Company's VAT periods end on 30 June, 30 September, 31 December and 31 March every year. Hi Spirit Limited let out office space surplus to its requirements on 1 April 2019 to an For the purpose of computing VAT liability, monthly data of taxable expenses and supplies unconnected firm. The tenant paid the rent in 4 equal payments between 1 April 2019 and 31 included in the statement of profit or loss is as follows. March 2020. The amount of rental income reported in the statement of profit or loss is the taxable rental income in this regard. Quarter Standard rated zero rated Total expenses & supplies expenses & supplies Note#15. Bank interest Apr-19 150,540 12,300 162,840 The bank interest relates to the year ended 31 March 2020. The bank deposits are held for non- May-19 110,430 15,900 126,330 trading purposes. Jun-19 145,000 7,230 152,230 Note#16. Dividends Jul-19 119,000 6,000 125,000 Dividends of £21,000 were received from another UK resident company. Aug-19 144,210 4,902 149,112 Page 9 of 12 Page 10 of 12 ER COLLEors oF re OLOY n COLLE or TEOLOGY Required: Sep-19 91,432 91,432 a. Oct-19 89,600 6,543 96,143 Assess tax adusted trading profits using the information given in statement of profit or loss and Nov-19 64,300 13,000 77,300 notes for Hi Spirit Limited Ltd for the year ended 31 March 2020. Start with the profit before Dec-19 105,340 2,500 107,840 taxation of £1,076,290 and list all of the items in the statement of profit and loss and in notes Jan-19 82,876 7,456 90,332 indicating by the use of a zero (0) any items that do not require adjustment. Assume that the Feb-19 86,000 3,240 89,240 company claims maximum available capital allowances. (11.5 marks) Mar-19 95,980 8,100 104,080 b. Total 1,284,708 87,171 1,371,879 Assess taxable total profits for the period ended 31 March 2020. (1 marks) c. Assess Hi Spirit Limited's corporation tax liability for the period ended 31 March 2020. (0.5 marks) d. Assess Hi Spirit Limited's VAT liability for the quarters ended on 30 June 2019, 20 September 2019, 31 December 2019 and 31 March 2020. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible. (11 marks) By when and how, should Hi Spirit Ltd file the corporate tax return and pay the tax payable for the period ended 31 March 2020 to avoid penalties and interests? Until when the accounting records relevant to the tax year 2019/20 must be kept by Hi Spirit Ltd? Explain in detail with reference to the tax rules and HMRC's directives. (1 mark)

Answer rating: 100% (QA)

Hi Sprit Limited UK based and sale in ENGLAND and WALES 0 Sales revenuesnet Note 2 13647000 0 Cost of goods sold Note 3 10214720 Gross profit 3432280 ... View the full answer