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Good afternoon
I am having difficulty when it comes to a question that involves adjusting the trading profit for companies
I am getting confused when it comes to adjusting…in this case adding back/deducting bank interest, payable, receivable, Loans, Dividends and when to add back these figures to the Corporation tax computation
What is the best way to remember this, if I get asked in the exam?
Hope I have explained myself
Many thanks
Lee
You will be asked in the exam! It is the same issue as for unincorporated traders, we have to make an accounting profit acceptable for taxation purposes hence any expenses debited in the statement of profit and loss that are not allowable trading expenses for tax must be added back to the accounting profit, for example interest payable on non trading loans.
Any items credited in the statement of profit and loss that are not trading income must be deducted in the adjustment of profit, for example interest receivable, property income, dividend income.
On the corporation tax computation we must then separately consider whether any item adjusted for in the adjustment of trading profit should be brought into the computation on its own basis, for example, interest receivable less interest payable on non trading loans and property income accrued in the accounting period. Dividends are not taxable in companies but in their gross form known as FII are added to TTP to give augmented profit – see OT course notes chapters 15 and 16
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