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Hi ,
I was wondering if you could explain to me how the Trading profits is calculated in the following question. I was able to calculate the correct capital allowance figure but after that i got stuck. I hope to hear from you soon and thank you in advance.
Grace starts a trade on 1 February 2013, and has the following results (before capital allowances).
Period of account Profit
£
1 February 2013 – 31 July 2014 105,000
1 August 2014 – 31 July 2015 79,270
1 August 2015 – 31 July 2016 70,730
Plant is bought as follows:
Date Cost
£
1 February 2013 Plant 69,500
1 Dec 2013 Car (115g /km) 18,000
1 Oct 2014 Machinery 40,000
1 Feb 2016 Plant 25,000
On 1 May 2016, the car purchased on 1 December 2013 was sold for £10,000.
Calculate the trading profit assessments for the first five tax years assuming maximum capital allowances are claimed.
Assume that the capital allowance rates applicable to the 13/14 tax year apply throughout.I am able to work out the capital allowances to equal :
1/2/2013 – 31/7/2014 £74360
1/8/2014 – 31/7/2015 £42365
1/8/2015 – 31/7/2016 £25775But how do i work out the correct trading profits ?
I fear you may not understand the difference between calculating the adjusted trading profit (after capital allowances) of the accounting period and then using these figures to compute the assessments for the relevant tax years!
Have you worked through the relevant chapters of the OT course notes and listened to the lectures?Thank you for your response 🙂 i have watched the lectures its just when calculating the tax assessments. I calculated a different trading profit after the capital allowances to the answer in the booklet.
Can i please have a second opinion?Kind regards,
In the OT booklet on page 248 the answer states :
The Trading profts of the frst three periods of account are as follows.
Period of account Working Trading Profts
1/2/2013 – 31/7/2014 £(128,360 – 74,360) 54,000
1/8/2014 – 31/7/2015 £(87,365 – 42,365) 45,000
1/8/2015 – 31/7/2016 £(75,775 – 25,775) 50,000But i wouldve calculated the trading profit as :
1/2/2013 – 31/7/2014 £(105,000 – 74,360)
1/8/2014 – 31/7/2015 £(79,270 – 42,365)
1/8/2015 – 31/7/2016 £(70,730 – 25,775)Can you please advise ? Thank you in advance
Hi Vicks
My apologies for not immediately seeing that the example you were querying was taken from the OT course notes.
I now understand the perfectly good reason you had for querying this question – there was an updating error and the information about trading profits contained in the question had not been changed to the correct figures which are then used in the answer.
This has been previously notified and you will find the correct answer on the F6 errata sheet.
Again my apologies for the frustration this may have caused you and trust that you will now be happy with the revised answer.
Do check the errata sheet please to ensure that you are aware of other amendments to text.
Thanks
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