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Who guys can help me to solve this problem? i’m really struggled and have no idea about how to calculate????
Kirsty Williams, aged 42, has been running a successful restaurant business as a sole trader since 1 September 2006. She has recently accepted an offer from Lapsong Ltd, an unconnected company quoted on the Alternative Investment Market, to purchase her business.
Lapsong Ltd would like to complete the purchase on 31 March 2017, but are prepared to delay until 30 April 2017 should this be beneficial for Kirsty. The purchase consideration will consist of either cash or ordinary shares in Lapsong Ltd.The following information is available:
(1) Kirsty’s tax adjusted trading profits are as follows:
£
Year ended 31 August 2015 62,400
Year ended 31 August 2016 87,200
Period ended 31 March 2017 (forecast) 58,500
April 2017 (forecast) 8,000The figures for the years ended 31 August 2015 and 2016 are adjusted for capital allowances, whilst those for the period ended 31 March 2017 and for April 2017 are before taking account of capital allowances.
Kirsty has overlap profits brought forward of £24,800.(2) The forecast market values of Kirsty’s business assets at both 31 March 2017 and 30 April 2017 are as follows:
£
Goodwill 135,000
Freehold property (A) 462,000
Freehold property (B) 128,000
Fixtures and fittings 240,000
Net current liabilities (90,000)
–––––––
875,000
–––––––Freehold property (A) cost £230,000 in 2005. Freehold property (B) was purchased during June 2013 for £94,000. The goodwill has a nil cost.
(3) The tax written down value of the fixtures and fittings at 31 August 2016 was £114,000. Fixtures and fittings costing £31,000 were purchased on 15 December 2016. All of Kirsty’s fixtures and fittings qualify as plant and machinery for capital allowances purposes, and are being sold for less than original cost.
(4) Kirsty has unused capital losses of £12,400 brought forward from 2015/16.
(5) Kirsty currently has no other income or outgoings. Her investment income will be £45,000 p.a. for 2017/18 onwards, regardless of whether the consideration is taken as cash or shares.
(6) Kirsty will not become an employee or director of Lapsong Ltd. If the consideration is in the form of shares in Lapsong Ltd, then Kirsty’s holding will represent 7.5% of the company’s share capital. Kirsty will sell the shares at regular intervals over the next ten years.
(7) Both Kirsty and Lapsong Ltd are registered for VAT.
Assuming that the business is sold on 31 March 2017 with the consideration being wholly in the form of cash:
(i) Calculate Kirsty’s trading income assessment for 2016/17.
(ii) Calculate Kirsty’s CGT liability for 2016/17.
(iii) Advise Kirsty of the VAT implications arising from the sale.Advise Kirsty as to the income tax, CGT and NIC implications of:
(i) Delaying the sale of the business until 30 April 2017.
(ii) Taking the consideration wholly in the form of ordinary shares in Lapsong Ltd, rather than as cash.You do not say what is the source of this question or the mark allocations. According to the “Approach to examining the syllabus” in ACCA’s Syllabus and Study Guide:
Section C of the exam will comprise one 10 mark question and two 15 mark
questions.
The two 15 mark questions will focus on income tax (syllabus area B) and
corporation tax (syllabus area E).
Recent exams show that the 10 mark question tends to be tax “planning” at a very basic level.
As your Q combines income tax, CGT, VAT and advising on the tax implications income tax, CGT and NIC it appears rather above F6 standard.
If I were you I would disregard it and focus on practising exam style and standard questions – all past exam Qs should be highlighted as such in a question bank published by an approved content provider.
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