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Sir I have two queries in regards to the Question 109 Kaplan exam kit ,
So basically statement of profit or loss is given and we have to reproduce this statement using cash basis ,
Revenue xxx
Less: (Food ,Utilities etc ) note 2 (17660)
note 2 :Trader paid 95% of his purchases of 17660 by 5th april 2020 & the remainder in May 2019 . There is no closing inventory .
In the answer he has deducted 16777 (17660×95%) but according to my understanding the rest of the 5% was also paid in 19/20 tax year i.e May 2019 then why only 95% is relevant using cash basis ?Secondly using cash basis there is no Capital allowance & we can outright deduct purchases of Capital nature but in the case of purchase of motor car , is the purchase price disallowed ? In the question a motor car was purchased on 6 april 2019 for 9000 with co2 emission of 105g/km , Motor expenses were 9340 but we claimed approved mileage allowance , total miles driven were 20000 and 13000 were Business so we claimed Approved mileage allowance of 4500+750 = 5250 , my confusion is that how do we deal with it when the car purchased car is of 100% business use or when the car is of 80% business use and 20% private where normally all expenses are allowed .
Sorry but I do not have the Kaplan kit to be able to check the detail of the question and answer – I assume you have worked through the Study Notes – Chapter 6 Section 3 – and accompanying lecture and worked examples 7 & 8?
I just want to clarify this single point .
Trader paid 95% of his purchases from Total of 17660 by 5th april 2020 & the remainder in May 2019 .There is no closing inventory.
In accruals we deduct full 17660 from revenue because there was no closing inventory but doing this on cash basis the answer in the kit is 17660 x 95% = 16777 when it is clearly mentioned that cash payments are done on 5th april 19 and in may 2019 both of which falls in tax year 19/20 . Why are we taking only 95% amount when doing cash basis ?Yes I have worked examples 7 & 8 again , i understood now by reading the notes again and i was mixing up the allowable expenses in case of motor car given to employee and motor car used by the owner of the business . Thank you for responding.
A couple of things here from what you have told me about the question:
1. There must be an error in the question when you quote – “Trader paid 95% of his purchases from Total of 17660 by 5th april 2020 & the remainder in May 2019”. The “remainder” must have been paid LATER which would make it May 2020! The question therefore has an updating problem from last year.
2. You need to look at the accounting period in which the payment was made – not the tax year – unless of course they are the same ie the trader prepares accounts to 5 April.
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