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The interest paid on the debenture is allowable since it is used for trading purposes. The amounts also relate to interest expense for the year hence are allowed and should not be added back to trading profit.
The income from the property is deducted from the net profit because they are not part of the trading profit and are taxed differently.
The bank interest of 12400 is also deducted from the net profit since they are not in normal trade and hence do not form part of trading profit.
The purchase of fixed assets should be capitalized and is therefore disallowed in computing taxable profit. They have thus been added back. The assets purchased are motor cars and Lorries totaling 64800.
Assuming that the equipment sold had a zero net book value, the sales price is equivalent to the profit on the sale of fixed assets. The amount is thus deducted from the net profit since it does not form part of the trading profit.
Trading profits (W1) 630760
Nontrade interest (W2) 12400
Property income 20600
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Total Taxable profit 663760
Dividend income( 54000*100/90) 60000
Augmented profit 723,760
Corporate tax liability (24%*723760) 173,702.4
Nontrade interest constitutes the bank interest of 12400
Property income of 20600 does not form part of trading income but is taxable.
Since the profit is less than 1500,000, the corporate tax rate is 24%
Task 2
If Watson considers a change in the payment of tax, the company will need to comply with the rules governing the calculation of tax for more than 12 months. In the case of a period of 17 months, the tax computation will be apportioned into two chargeable accounting periods i.e. 12 months and the other of 5 months. In this case, the trading income will be apportioned based on the time. Capital allowances will however be calculated separately for each of the chargeable accounting period (CAP)
Moreover, property income will also be apportioned based on time. Nontrade interest on the other hand will be considered in the period of accrual in case there are no details to assist in apportionment. Nonchargeable gains will be computed for the period of the gain while gift aid will be considered in the period in which they are paid.
Zee Ltd has the following results for the four years to 31 March 2013
Task 3
Year ended 31 March 2010 2011 2012 2013
Trading Profit 61,900 77,400 64,200 Nil
Less loss b/f - - - -
Chargeable gains - 4,300 2,700 (1,800)
Total Profits 61,900 81,700 66,900 (1,800)
Less: Loss of relief 1,800
Carry back (66,900)
61,900 81,700 Nil Nil
Less Gift aid 3,400 3,400 wasted wasted
Taxable total profit 58,500 78,300 Nil Nil
Workings 1
Chargeable gains
2010 2011 2012 2013
Gain in the year Nil 4,300 2,700 5,700
Less loss b/f (7,500)
Net chargeable gain Nil 4,300 2,700 (1,800)
Workings 2
Loss Memorandum
Loss for 2013 172,500
Same period relief (1,800)
Carry back for 2012 (66,900)
Carried forward and utilized 103,800
Year ending March 2013 Nil
Carry forward to March 31, 2013, 103,800
The company will not be entitled to a repayment in the first three years since the company has not incurred losses. In the fourth year, the company will carry forward its entitlement for the non-recovered claims plus interest to subsequent years. The relief will therefore be realized in the year 2014 and after.
In conclusion, companies must ensure that they compute their tax liability or make their tax claims as per the tax regulations to avoid unnecessary penalties and to ensure that they operate as per tax requirements.
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