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Dear Sir
This is the statement on the paper:
“Premium paid to acquire a leasehold office building
On 1 August 2015, Wretched Ltd paid a premium to acquire a leasehold office building on a ten-year lease. The amount of premium assessed on the landlord as income was £34,440. The office building was used for business purposes by Wretched Ltd throughout the eight-month period ended 31 March 2016.”
I thought that to calculate the allowable expense for trading profit would be £34440 x (51 – 10)/50 and then apportioned 8/12 months however the mark scheme has calculated it as 34440/10 x 8/12.
I don’t understand why? Could you please enlighten me?
Many thanks
This is another example of being careful to read the words within the question – the question says that the 34,440 IS “the amount of premium assessed on landlord as income” which is therefore divided by the number of years of the lease and then time apportioned for the accounting period. You have unfortunately read it as the full premium received from which you are then doing the calculation to determine the amount of income assessable – that work has already been done for you
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