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In the year ended 31st march 2016, Easter ltd had £100000 of tax adjusted trading profits before capital allowances, bank interest received during the accounting period of £6000 and dividends received of £4500, It also made QCD of £3200. Capital allowances for the year were £2000.
Bank interest receivable of £2000 and £1000 was accrued at 31st march 2015 and 31st march 2016 respectively.
What are Easter ltd taxable total profits for the year ended 31st March 2016?
Answers £101800, £99800,£104800,£99000I calculated it as
Trading profit – 100000
Less capital allowance (2000)
Tax adjusted trading profit –98000
Bank interest (6000+1000) = 7000
Total profit – 105000
less QCD = (3200)
Taxable total profit – 101800Sir instead in answer calculated, bank interest is calculated as
6000-2000+1000=5000
I am not able to understand why did they take 2000 into account when it was accrued on 31st march 2015. It would have been accounted in previous accounting period.
Even if i assume that both these figures were included in 6000 that is mentioned then 2000 should be deducted but then 1000 should not be added as it is already accounted in 6000.
Please helpYour problem here is not tax – it is an understanding of the basic accruals concept in accounting!!
You have rightly added the accrual at the end of the period as it was receivable but NOT yet received – it will be received in the next accounting period. Hence the closing accrual at the end of the previous year of 2,000 would have rightly been included in last year’s assessment but will be received in this period and be in the 6,000. This must therefore now be excluded from this year’s assessment!
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