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Rose is a sole trader who prepares accounts to 5 April each year using the cash basis of accounting. Her results for the period of account to 5 April 2016 show the following.
Cash sales -£41000
Invoice sales-£4000
Cash expenses-20,200
The figure for invoice sales includes an invoice for £1500 which was paid on 10 April 2016.in addition to the cash expenses of £20200,rose incurred motoring expenses of £2800 for driving 8000 miles of which 6500 miles were for Bussiness purposes. Rose wishes to use the flat rate allowance for motoring.
What is rose taxable income for the tax year 2015/16?Problem- here according to me ,the motoring expense should b £2800*6500/8000=2275.
But in the answer it is 6500*45p=2925.
I dnt understand ,while in q they gave us the total amount then y they did otherway?The question has given you that information to test whether you know the rule that under the cash basis we must use the flat rate expense allowance!
This is from the BPP book. In the book, the answer given has the cash receipts total as £41,000 + (4,000 – 1,500). I do not understand why we have to add the invoices sales to the cash receipts as we have not received the cash. I thought under Cash Basis we onyl include receipts for actual cash received. Is this an error in the text book? Thanks
Is the the motoring expense of £2800 deductible under the cash basis? Shouldn’t all expenditure on motor cars be replaced with the fixed rate mileage expense. Doesn’t that mean we have to deduct the £2800 from £20200 to get £17400 for cash expenses and then add the fixed rate mileage allowance of £2925 (6500 x 0.45).
That way the final answer should be £23175 [41000-(4000-1500)-17400-2925]
The reason for my confusion is that in the BPP study text, the motoring costs were not deducted under the cash basis in the example given.
Also, in the BPP revision kit, in Q81, the answer says the following:
“The running and capital costs of owning a motor car are replaced by the deduction based on statutory mileage allowances”So, BPP is contradicting themself here. Any help would be greatly appreciated.
Mandip – read the question there are 2 different types of sales, firstly cash sales (therefore include) plus there are invoiced sales of 4,000 of which 2,500 has been received in cash (1500 was received after the a/c period end)
Tenki – I do not have the BPP material but from above again read the question it says “IN ADDITION to cash expenses of £20200,Rose incurred motoring expenses of £2800”
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