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what should be included in the tax adjusted trading loss ?
in his statement of profit or loss for the y/e 31 march 2016
interest payable 31200x ltd issued a loan note and this was used for trading purposes interest of £20800 was paid on 31 December 2015 and £10400 was accrued at 31 march 2016
Interest PAYABLE for the accounting period is deducted as given in the question – here in deriving the adjusted trading loss as the loan is a trading loan
Remember that the profit u are supposed to start with is the figure as per accounts. This figure includes both non allowable and allowable deductions. Based on the notes given, u are supposed to determine which figures were correctly deducted( like gifts for employees) and which are not allowable(depreciation and thus has to be added bacK) or sometimes only part of an expense is allowable for deduction( like if they include one figure for donations and then tell u some were political and some were local).
ACCA tests if u can distinguish which one require adding back or deduction so they give notes on a variety of figures and u have to determine for yourself. They have stated that those items that need no adding back or deduction should be represented by a zero. A deduction for employees will be allowed…..thus u have don’t have to add anything or deduct anything….so u put a zero. For donation u separate the one figure given……for local charities carrying adverts,deduction will be allowed…..thus u have don’t have to add anything or deduct anything….so u put a zero and for the political part…..on a next line….u add back the amount not allowable for deduction.
Since interest on trading loan is allowable for deduction ….it was correctly dealt with when calculation profit …..thus no deduction or addition has to take place…..this is shown by a zero.
if u look at the marking scheme in the revision kit….u get a half mark for putting the zero…as this tells the examiner that u know the deduction was allowable and no adjustment has to be made.
Hope this helps!!!
Thank you Nafisha for explaining the background to the question – interest payable on a trading loan is an allowable deduction in deriving the adjusted trading profit so that if this figure has already been deducted in deriving the profit figure from which you commence the adjustment of profit statement then a zero adjustment is required
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