Ishimura Extractive (“IE”) plc is a Manchester based mining company. It operates globally but its biggest operations are in the UK and from where it derives most of its income. It prepares its accounts to the 31st December 2021. You have been provided with the financial information below. Ishimura Extractive plc Income statement Year ended 31st December 2021 £ Revenue 95,500,000 Cost of sales (59,200,000) Gross Profit 36,300,000 Operating Expenses (34,100,000) Operating Profit 2,200,000 Other income 7,000,000 Profit before tax 9,200,000 Additional Information The finance team understand that most items of expenditure are allowable but have highlighted the following information. Cost of Sales: - This balance includes depreciation of £2,200,000 and the team are unsure how it should be treated as it is in cost of sales and not operating expenses. Operating Expenses: This balance is made up of lots of smaller administrative and distribution balances. On this basis the finance team have decided to provide a breakdown of specific items that they need some guidance on. Gifts and Entertaining: - Euro 2020 trip – 3 sales staff took 10 staff from their biggest customer to watch the Euro 2020 final at Wembley. The event included the match, food and drinks. - Loyalty Awards – 13 staff who have worked at IE for 20 years were each given a gold watch to thank them for their loyalty and long service. - Gifts – a gift of a solar powered power bank, that included IE’s logo and website on the front, was sent to 40 clients. £60,000 £10,800 £2,200 5001ACC Continued… 5 Legal and Professional: - Accounting services – This is for auditing services provided by Ledoitte LLP. - Contract advice – Payment to a solicitor for advice regarding a sales contract with a new customer based in Cuba. - General provision – As the economy is expected to recover post lockdown IE believe they can reduce their general provision for bad debts by £25,000. £145,000 £1,100 £(25,000) Miscellaneous: - Wages and salaries – IE recently seconded an employee to help a charity for 6 months with their new accounting system. During this time IE paid their salary in full. - Subscriptions – The company spent the total on various subscriptions covering the mining industry as well as professional subscriptions for the engineers and finance staff), within this amount the finance team included a £12,000 donation made to the Conservative political party. IE management believe that this party best represents the mining industry in terms of environmental rules. - Vehicle repairs – A digging machine owned by the company was severely damaged in a mine collapse and they decided to buy a replacement machine, in June 2021, as it would be cheaper than repairs to the original. £19,500 £50,000 £31,000 Other income consists of: - Dividend income £2,000,000 - Interest received £4,000,000 - Profit on disposal (See disposal) £1,000,000 Capital additions and disposals On 1st January 2021 the tax written down value (“TWDV”) was as follows: - Main Pool £10,100,000 - Special Rate Pool £7,500,000 Additions purchased during the year Asset Date of purchase Cost Motor Car 1 (Diesel <50g/km) 15/06/2021 £45,000 Motor Car 2 (Electric vehicle/zero emissions) 01/07/2021 £38,000 Qualifying Integral features 22/02/2021 £190,000 5001ACC Continued… 6 Disposals during the year Per ‘Profit on the disposal’ above, the following information is provided. The equipment was all main pool qualifying and was sold on the closure of a unproductive mine. Cost NBV Proceeds Equipment £10,000,000 £4,000,000 £5,000,000 

Required 

a) State and explain the tax treatment for the items under ‘Additional Information’ section above; starting with ‘Cost of sales’ and finishing with ‘Profit on disposal’ 

b) Calculate the capital allowances for the year ended 31st December 2021. 

c) Calculate the tax adjusted trading profits for the year ended 31st December 2021. 

d) Calculate the taxable total profits, including any relevant deductions, for the year ended 31st December 2021. 

e) Calculate the tax liability for Ishimura Extractive plc for the year ended 31 st December 2021.

Answer rating: 100% (QA)

a The tax treatment for the items under Additional Information section above is as follows Cost of S... View the full answer