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Dear tutor, i am very confused in calculating profit based on cash basis. shown as follows:
Note 2-motor expenses
the total motor expenses for the year ended 5 April 2015 were £ 5,500, of which 20% was for private journeys.this proportion has been disallowed in calculating the trading profit . During the year ended 5 April 2015, Chi drove 13200 business miles.
the answer is that 10,000 mile x 0.45=4500; 3200 miles x 0,25=800 total £5300 was included in expenses category upon cash basis, why they didn’t use 5500 instead of 5300?
many thanksBecause Chi is using cash basis she can claim a mileage allowance for the business miles as calculating above. This replaces the capital allowances.
I am not the tutor, but maybe this helps.
See OT Course Notes p.45 Chapter 6 section 3 comparing the normal adjustment of profit with the cash basis and illustrating with example 6 showing the difference in the treatment of motor cars under the two bases. This shows how under the cash basis we use the statutory authorised mileage rates as used in Employment Income and this replaces both capital allowances and the business motor expense deduction.
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